Maricann Group Inc, Delta 9 Cannabis Inc Win First-Ever Provincial Supply Deals

Benjamin A. Smith
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Maricann Group Inc (CNSX:MARI) (OTCMKTS:MRRCF) (FRA:75M) and Delta 9 Cannabis Inc (CVE:NINE) (OTCMKTS:VRNDF) (FRA:V5D1) both attained significant milestones today. Both small cap junior operators scored inaugural supply deals with provincial crown corporation Manitoba Liquor & Lotteries (MBLL), thus providing a reliable source of baseline revenues and foisting themselves into markets generally controlled by Big Cannabis.

Beginning with Delta 9 Cannabis, the company has agreed to supply a minimum of 2.3 million grams of cannabis available through Manitoba Liquor and Lotteries Corporation during the first 12 months of the agreement. The deal is the second major supply agreement the company has procured, having signed a 5-million gram deal with privately-held Sundial Growers Inc. in March.

Of the four concrete deals doled out by MBLL, Delta 9’s comes a close fourth behind Aphria Inc’s 2.7 million gram commitment. Of course, the Manitoba-based LP and dispensary obviously procured significant advantage being a regional operator. But having a SA on-par with the likes of Big Cannabis heavyweight Aphria is surely a satisfying accomplishment for the company with a market cap which is approximate 23-times its senior.

Next up is Maricann Group. The company signed-on with MBLL to make available for purchase a minimum 550,000 grams of various cannabis products during the first twelve months of the agreement. While the supply commitment was lower than afforded other MBLL selectees, it’s nonetheless a tacit boost of confidence in Maricann’s operations and management team, for which unsightly reputation continue to linger.

The last point should not be underestimated. Despite of Maricann’s vast array of assets and burgeoning production yields expected to come online in the next 2-3 quarters, the stock’s valuation lags significantly behind many peers carrying inferior assets. The reason is due to lingering skepticism pertaining to events surrounding the termination of a $70 million bought financing and subsequent insider investigation by the Ontario Securities Commission. This includes the direct investigation of Maricann Group CEO, Ben Ward.

While it’s unclear how the investigation is proceeding or whether any wrongdoing took place, the MBLL obviously felt comfortable enough to include Maricann Group in the supply mix—albeit at a lower capacity. Being a provincial crown corporation—essentially an business extension of the Canadian government—the signaling is significant. It’s hard to interpret the move as anything less than a confidence booster for investors, as the market community jostles whether the company and management can be trusted.

Maricann Group Inc. CEO Ben Ward discusses acquisition of CBD cigarette alternative manufacturer Haxxon AG from Switzerland, regulatory issues, and general progress and strategy of the company

Perhaps more significantly, MBLL’s decision may inspire the credibility needed to help Maricann Group go to market for a much-needed capital infusion. While it’s unclear whether legalities surrounding the OSC investigation results may preclude another bought deal, such validation certainly helps the company work its way back to respectability.

As at March 31, 2018, the Maricann Group had working capital of $36,369,186 but has churned through $13,989,273 primarily on facility expansions in Q1 2018. With meaningful revenue generation still a couple quarters away—and with construction efforts of their 940,000 sq. ft Langton facility fully underway—one imagines operation capital requirements may be walking the tightrope.

It will be interesting to see whether today’s announcement helps Maricann facilitate a limited bought deal financing or credit/debt facility with its bankers.

Canopy Remains King

While the sub-plots are perhaps the most interesting part of today’s announcement, we’d be remiss to neglect the biggest winner in this equation—Canopy Growth Corp.

The company earned the biggest offtake to MBLL vis-à-vis their competitors—6.5 million grams of cannabis products over the next twelve months to meet demand from the adult use recreational cannabis market set to open on October 17, 2018. While the numbers are modest on an aggregate basis, the company’s footprint in the province will extend well beyond 6,500 kg supplied to MBLL.

In February 2018, Canopy Growth inked a separate retail license with Delta 9 Cannabis to build and operate a chain of retail stores throughout the province of Manitoba. The first location has already been operating in the Osborne Village area of Winnipeg, and several more store locations are planned. Delta 9 management estimates the provincial cannabis market at $300 to $500 million annually. 

Either way, today’s news was probably more important on a relative basis for Delta 9 Cannabis and Maricann Group due to the accomplishment it represents. But on an aggregate basis, Canopy Growth remains the King of the jungle.

 

Update: Beleave Kannabis Corp. was also awarded a supply deal by MBLL. The company has a partnership with Seven Oaks, which will be among the first cannabis brands available to consumers upon legalization. Specific details of price and quantities are still being worked out, but I’m hearing it’s in the 400,000 gram per year range.

OrganiGram Holding Inc. and Hiku Brands Company Ltd. also inked separate 5 million and 2 million gram deals with MBLL, respectively.

Benjamin A. Smith

Benjamin A. Smith

Ben is a research analyst and capital markets professional with nearly 20 years of experience. His areas of expertise are broad-based, and include extensive knowledge of macro economics, stock/derivative trading, commodity complexes, cryptocurrencies and technical/quant analysis. He also maintains an particular affinity for U.S. politics and the macro-regulatory environment facing...
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bsmith@midasletter.com |

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