No question about it: Heritage Cannabis Holdings Corp (CNSX:CANN) (OTCMKTS:HERTF) (FRA:2UE) was a powder keg in search of a match. With regular appearances by company CEO Clint Sharples in Midas Letter’s Bay St. studio, and willing investors amplifying the message online, CANN was positioned to move. All the company needed was an opportune message to set everything in motion. And then it happened.
Before market on February 5th, Heritage Cannabis issued a press release which brought everything together. The company announced the expansion of its extraction capacity with the order of three new Vitalis extraction systems, expected to arrive before month’s end. Once system installation is completed—and the necessary Health Canada licenses obtained—Heritage Cannabis will become among the largest Canadian processing companies in terms of extraction capacity. The company expects to receive permitting in Q1 2019.
Presser reaction was the stuff investor/public relations professionals would dub a “home run”. Although Heritage Cannabis only rose a modest $0.02 (↑8.69%), over 4.42 million shares traded hands—the most since late-September. It also bumped prices against technically-important November breakdown zone, which saw prices careen into the mid-teens (↓40.00%) during the cannabis sector’s nightmarish Q4 2018 period. With a favorable news cycle in place, piercing this resistance was mere formality.
But the party was just getting started. In a brilliant optical maneuver engineered on Twitter, Mr. Sharples tweeted pictures of his soon-to-be extraction darlings later that night. The resulting tweet engagement levels were extraordinary: 30 retweets and 123 likes were administered, despite a modest follower-ship of 1,094 users. Tweet impressions likely breached 25,000 with ease. Most everyone interested or invested in Heritage Cannabis would have received the memo, with Mr. Sharples poignantly hammering home the post-presser addendum.
— Clint Sharples (@clintsharples) February 6, 2019
Fueled by the realization that Heritage’s business plan wasn’t just an abstract concept, the stock continued to run. On February 6th, CANN tacked-on an additional $0.045 (↑17.99%) on equally impressive volume. And today, investors extended prices further on the second best volume in a year—$0.04 (↑13.56%) on 7.96 million shares, respectively. All told, Heritage Cannabis stock has appreciated ↑103.03% in calendar 2019, with a sizable portion of the move coming during this week’s sector consolidation. While most small caps swooned, CANN has surged forward.
While Heritage’s extraction presser/tweet was the match that lit the grill, there appears to be substance behind the rally. The company owns a large quantity of processed hemp feed stock waiting to be extracted—around 50,000 kg to be exact. The company estimates that at current going rates, there’s potential for $30-40 million in revenues, worth about $0.03 or $0.04/share in annualized EBITDA.
Perhaps more importantly, Heritage Cannabis has a real opportunity of staking its claim in an under-developed market. With pervasive cannabis shortages in Canada’s adult-use market—CBD oil in particular—the company has a window to carve a niche for itself among the cannabis giants. Initially, the chosen path is to wholesale and white-label oil to other licensed producers. Eventually, that could lead to the company developing its own retail brands.
Whatever path is chooses, consumer demand guarantees the machines won’t stop running until the feed stock runs out. That gives the company plenty of window to build organically, and to exert marketplace influences that punches above its weight.
With Heritage Cannabis doubling in 5-weeks and entering a formidable resistance zone circa $0.35/share, it’s decision-time for low cost basis shareholders. While some will invariably book profits, I suspect many will hold varying position amounts in hopes of achieving much higher future returns. Will those returns eventually come? I cannot say. It’s all about how much investors are willing to bet on Clint Sharples’ vision, business model execution and company penetration into the fragmented Canadian CBD oil market.
However, these last three trading sessions have sent a clear message to investors: 1) well-timed PR/social campaigns are worth their weight in gold; and 2) the market is warming to the possibility that Clint Sharples vision may soon become reality.
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