Despite the adverse impact that the coronavirus has had on businesses, demand for cannabis continues to increase as it has been declared an essential industry in several major markets.
In order to satisfy the increased consumer demand, companies must find a way for employees to operate in a manner than is contactless and safe. The cannabis sector has been impacted by the coronavirus and as a result many businesses have been under considerable pressure of it.
Ancillary cannabis companies, though, have been a beneficiary of the coronavirus and we believe that this vertical has been flying under the radar. As demand for cannabis increases, so does the demand for ancillary products and services. Many ancillary cannabis companies have been forced to modify the structure of their business in order to deal with the current market environment. Today, we want to highlight 3 ancillary cannabis companies that have been flying under the radar and are worth watching.
Helix Technologies: A Leading Cannabis Technology Platform
Helix Technologies (OTCQB:HLIX) is a leading provider of critical infrastructure services to the legal cannabis industry and is a technology platform that we are excited about. During the last quarter, Helix has been under considerable pressure and we believe that the recent decline is overdone. At current levels, the company has a favorable risk-reward profile and we are bullish on the growth prospects that are associated with the platform.
Through its proprietary technology suite and security services, Helix Technologies provides comprehensive supply chain management, compliance tools, and asset protection for all types of licenses in any regulated cannabis market. The company has a substantial footprint and reaches over 2,000 customer locations in 38 states. Although we are favorable on the leverage to the US market, we are most bullish on the leverage that it has to emerging international markets and find this to be an attractive aspect of the story.
Earlier this year, Helix reported to have expanded its international footprint across two continents, Europe and Africa. This development significantly strengthened the company’s existing position in Europe and marked the beginning of operations in Africa. During the last year, we have seen a significant increase in the amount of interest in these markets and are favorable on the leverage that Helix has to them.
The announcement comes less than a year after Helix began European operations with growers and processors in the United Kingdom (UK). Currently, the company is operating in 8 countries and has established itself as a trusted name in the cannabis technology space. Since inception, Helix has tracked more than $20 billion of transactions and is well positioned to capitalize on the global opportunity.
Over the next year, we expect to see Helix Technologies further expand in Europe and Africa and are bullish on the growth prospects that are associated with the opportunity. We believe that the company has been flying under the radar and is a platform that we are excited about. We believe that Helix Technologies is well positioned to survive the current market environment and we will continue to monitor the story.
MustGrow Biologics: A Burgeoning Opportunity to be Watching
MustGrow Biologics Corp. (MGRO.CN) is a business that we expect to benefit from the increase in demand for cannabis and is an opportunity that we have been excited about. The company is an agricultural biotech business that is focused on providing natural, science-based biological solutions to replace synthetic chemicals used in high value crops (i.e. fruits, vegetables, turf, tobacco, cannabis, and hemp).
The last twelve months have been transformative for MustGrow and we believe that it is well positioned to execute on previously announced initiatives. During the last year, the company spent over $10 million while working to develop and patent state-of-the-art agricultural technology and complete more than 100 independent research trails. Through the trials, the company has been able to gather the necessary data to prove that the proprietary product is as effective as chemical treatments and we find this to be significant.
One of the most significant potential catalysts for the business is related to the work that is being done on developing a more concentrated version of the product in a liquid format. Over the next two years, MustGrow wants to have its liquid formulation registered as a biopesticide in the US and Canada, wants to move the registration applications forward for its cannabis products, and be granted additional patents. We believe that the company has visible growth prospects and consider it to be an opportunity that is flying under the radar.
By the third quarter of 2020, MustGrow hopes to have three products available for sale in Canada. We are favorable on the company’s strategy for releasing products as well as the types of products that are being launched. The first product will be CannaMG, which is the company’s mustard derived technology that is used to treat the soil in the cannabis pre-plant process. The second product, CannaPM is a third-party product that was in-licensed in 2019 and is a bio-fungicide that has been used to treat powdery mildew. The third product is a bio-fertility product that is currently available for sale under the brand name, TP-1000.
MustGrow represents a multi-faceted growth opportunity and we are favorable on the company’s risk-reward profile. The company is led by a well rounded team that is and has diverse skill sets and expertise. We are favorable on the direction that the management team is bringing the company and believe that it is an opportunity to be watching.
Xtraction Services: An Ancillary Service Provider to be Watching
Earlier this year, Xtraction Services Holding Corp. (XS.CN) made headlines after it signed a strategic partnership and cooperation agreement with KushCo Holdings (KSHB) that would result in KushCo owning 20% of it. Under the agreement, the companies will work to establish a long term and stable relationship that involves the sharing of opportunities and we are bullish on the growth prospects that are associated with the relationship.
Xtraction Services provides equipment leasing solutions to cannabis and hemp operators and offers equipment leasing services to cannabis businesses. The company is offering capital solutions to an industry that is strapped for cash and we are favorable on the structure of the business. Xtraction Services provides a number of flexible leasing options that gives the operator access to the equipment they need. We are favorable on the variety of financing structures that are offered by Xtraction Services and believe that it represents a differentiated opportunity.
One of the offerings from Xtraction Services that we are most excited about is the sale-leaseback program. The program is designed to allow companies to strengthen their balance sheets by Xtraction Services purchasing the equipment and leasing it back to them. Through the program, the operator is able to get access to capital that can be used to help advance the business and this creates a win-win situation for both Xtraction Services and the operator.
With regard to the KushCo relationship, an attractive part of the Xtraction Services platform is its relationships with more than 70 original equipment manufacturers (OEMs) and distributors across several key industries. The company represents a strategic partner for KushCo which will be able to offer its customers equipment financing solutions and directly facilitate the delivery of the hemp biomass that will be used in the extraction process as well as the delivery of the offtake products to its brand network.
Over the next year, we expect the KushCo relationship to serve as a major growth driver to the business and believe that the market under-appreciates this aspect of the story. The recent trend has been to the downside and this is an opportunity that we continue to follow. At current levels, we find the valuation to be compelling and are favorable on the growth prospects that are associated with the business.
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Published at Tue, 14 Apr 2020 12:04:07 +0000