Wayland Group, James E. Wagner Offer Enticing Value Proposition For Patient Investors
With broad market Canadian cannabis stocks starting to bottom after a torrent of post-legalization selling, cannabis bulls have an opportunity to deploy new rounds of capital into the space. Unlike previous cycles however, where to deploy such investment funds isn’t a straight-forward decision. With the GMP Securities defacto revenue downgrade of the entire sector earlier this week, buying into the big names may be less enticing this time around. thus, we look at a couple of Canadian LPs offering reasonably-valued alternatives for investors looking to put cannarisk capital to work.
Our first profiled company is Wayland Group, which has come a long way recently. After suffering through a protracted stretch of under-performance following February’s well-known misgivings, those issues are behind them.
The company’s upturn in fortunes can be roughly traced back to mid-June, when Wayland Group minted an inaugural supply deal with provincial crown corporation Manitoba Liquor & Lotteries (MBLL). Not only did it provide a reliable—if modest—source of baseline offtake revenues (three other supply agreements would follow), it helped facilitate a mid-July “best efforts” private placement of up to $40 million of units of the company at a price of $1.60/unit less than a month later.
As we indicated at the time, we felt the financing was a catalyzing event that “burie(d) the hatchet” once and for all. No more was the company starved for capital or investors focusing on past skeletons. The company’s significant balance sheet (some would say discounted) became the focus, and shares reacted in-kind. From August 3rd to September 12th, Wayland Group rose ↑69.23%, besting sector proxy Horizons Marijuana Life Sciences Index ETF (TSE:HMMJ), which rose ↑52.20%. While the stock wasn’t among the sector’s biggest movers, the out-performance was a complete ‘180’ from the stock’s poor showing during this year’s spring sector rally.
Wayland Group CEO, Ben Ward, joins us to talk about the company’s growth prospects in a post-legalization world
While Wayland’s share price has been soggy in recent times—likely owing to a couple of closely-spaced financings and corresponding details which are beyond the scope of the article—the fact remains that pound-for-pound, Wayland Group packs more balance sheet punch than most junior LPs.
Let’s begin with Wayland’s forward-looking revenue picture. With the company committed to 7,547 kg (7,547,000 g) of confirmed provincial supply—excluding Ontario where exact offtake/SKU commitments are unknown—revenue will soar. Some of the biggest LPs already have COGS (total costs directly involved in producing the product) below $1.50/g, and Wayland’s lean Rockwell automated Langton facility should push them near the leaders. Even after accounting for federal excise duty, provincial duty and GST, net revenue from fulfilling supply term with Manitoba, Alberta and B.C. alone should easily yield robust 8-figure net revenue streams.
Keep in mind than Wayland is already exporting dried flower into Germany, which is struggling to meet domestic demand for medical marijuana. This began on August 15th, as dry cannabis flowers from its EU-GMP certified facility in Langton were successfully exported from Canada. Further exported product will support a 9,000kg of EU-GMP certified cannabis flowers supply agreement (3-year term) through Cannamedical Pharma GmbH. With the United Kingdom allowing medical cannabis treatment beginning today, the company’s GMP certification opens up additional E.U. markets unavailable to most competitors. Stay tuned.
Also consider that Wayland Group isn’t just another run-of-the-mill LP with a fancy greenhouse. Yes, their fully-automated 217,000 sq. ft. of grow and production space (36,000 kg annual dried flower capacity; ramps to over 90,000 kg/annualized in Q4 2019) is a distinguishing feature. But I would posit that it’s Wayland’s rounded asset portfolio which separates themselves from the pack. This includes business interests in several E.U. nations, EU certification/export licensing, and a proprietary cannabanoid delivery technologies named Vesisorb.
Further details on can be found on Wayland Group’s updated investor deck. Ultimately, we’re believers of the company’s outsized value proposition, and will be following events closely as Canadian cannabis companies head full-tilt into a collective international expansion frenzy.
James E. Wagner Cultivation Corp.
We’ve been writing a lot about Canada’s preeminent aeroponics cannabis grower recently. Our interest recently spiked after James E. Wagner CEO, Nathan Woodworth, declared that organic certification is coming. Should that event arise, we believe the company’s low cost/fast turnover growing structure—combined with premium prices organic cannabis commands—make for an exciting top line investment story over time.
But outside of that future catalyzing event, current happenings are already moving the needle forward.
Today, shares of JWCA rose $0.09 to $0.86/share (↑11.69%) after the company launched product sales on the Spectrum Cannabis platform. This gives James E. Wagner enhanced product visibility and distribution, which was already on upswing after they joined Canopy Growth‘s CraftGrow program earlier this year. The first product offering is expected to be the popular “Cannatonic” strain, a high-CBD offering commonly used to treat pain and psychological conditions. Given the premier terpene and cannabanoid profiles JWCA cannabis is known for delivering, we’re sure it will be a hit with consumers.
James E. Wagner is Canada’s only licensed aeroponics cannabis company, with its new 345,000 sq. ft. facility expected to be partially operational by Q1 2019. At full capacity in Q4 2019, the company expects to produce 31,500kg/annualized at less than $1.00/gram production costs. JWCA is currently fulfilling a two-year offtake term with Canopy Growth, with Canopy’s option to renew for another two years at expiration. At just under 108M shares fully-diluted, James E. Wagner’s market capitalization remains under $100 million—in stark comparison to many of its less endowed peers.
Midas Letter will have further coverage of both companies as further events warrant.
Update 7:35 pm EST
According to an informal poll conducted on Twitter, about 1 in 5 investors indicated that they were looking to buy beaten-down CDN cannabis juniors in this bear market trough. Certainly, Wayland Group would be a prominent member of this rather sizable sub-class of stocks. Depending on your definition of “beaten-down”, JWCA might be included in this category as well.
Conducting a quick 2-day poll to (informally) gauge sentiment in the Twittersphere.
What class of cannabis stocks are you looking at buying as this nasty bear market matures?
— Benjamin A. Smith (@BenjaminA_Smith) October 30, 2018
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