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National Access Cannabis Corp (CVE:META) Pure Play Retailer with Largest Recreational Store Footprint in Canada

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Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

National Access Cannabis Corp (CVE:META) (OTCMKTS:NACNF) (FRA:1HV) is a cannabis-based health care service provider, offering education and care through its network of clinics and retail locations. The company pivoted into the recreational market to bring health, wellness, and safety to consumers. CEO Mark Goliger is pleased the company has the largest footprint of retail stores in Canada, with 24 locations across the country. Subject to license availability, National Access Cannabis intends to double that footprint in 2019. Under its retail brand NewLeaf Cannabis, National Access Cannabis has captured 20 percent of the licensed retail outlets in Alberta. Through its Meta Cannabis Supply Co retail brand, the company’s share of the Manitoba retail market is even greater, at 33 percent. Goliger believes retail sales will be a significant part of the legal cannabis industry and suggests National Access Cannabis is currently undervalued given its retail and medical success.

Transcript:

Narrator: National Access Canada is a healthcare service provider that specializes in prescribing medical cannabis and provides members with ongoing education and care.

Through its network of medical cannabis clinics, partner pharmacies, clinical research division made a cannabis supplying company in New Leaf cannabis retail stores, the company enables patients access to Canada’s network of authorized licensed producers of cannabis.

National Access Cannabis is listed on the TSX Venture Exchange under the symbol META.

James West:   Hey, back here with Mark Goliger, CEO of National Access Cannabis Corp., trading on the TSX Venture under the symbol META. Mark, welcome.

Mark Goliger: Thank you very much.

James West:   Mark, what is the business model of National Access Cannabis?

Mark Goliger: Well, we are a retailer, a pure-play retailer, although we focus both on medical and recreational here in Canada. Our history is one of clinic operations, supporting patients’ access to legal cannabis with the ACMPR and getting the LPs to ship directly to our patients. We’ve now expanded into pharmacy, and of course, we have the biggest footprint of retail recreational stores across Canada right now, sitting at 23; 24 if you count our Saskatchewan acquisition.

James West:   24 physical locations where people can walk in and buy cannabis, be they medical patients and/or recreational patients?

Mark Goliger: That’s right, except for, in those rec stores right now, they are selling to more rec consumers, because we can’t process medical patients in rec retail here in Canada yet.

James West:   Oh, that’s just one of the rules that they haven’t.

Mark Goliger: One of many.

James West:   Right! One little further impediment to what we call a free and fair market. Cool. So what is the biggest seller in National Access Cannabis stores, for the most part?

Mark Goliger: THC flower.

James West:   Oh, is still- ?

Mark Goliger: For sure, absolutely, yep.

James West:   So everybody – you know, a lot of the LPs come on the show and they sort of suggest that the, you know, the trend is toward extracts. And is that simply is not materializing as the case, at least in your stores?

Mark Goliger: You know, that’s a very good question. When you say extracts, right now, in Canada, there are really two different product lines: one is flower-based products, and the other is just oil. Pure oil, whether that’s in capsules or in eye-droppers for sublingual.

James West:   Right. This is not – I’m sure most of you have figured this out, if you’ve bought some of this oil and tried to smoke it, it’s not our old hash oil or weed oil, it’s actually extract diluted in MCT oil, which I found out the hard way, can I say? Yes, I’m, you know, a pioneer explorer from way back.

Okay, so National Access Cannabis, though, it started off as a, and this was a business model that a few of the LPs tried to roll out simultaneously to become major producers; it was a great way, because all these patients who were currently using opiates and/or other substances to ameliorate traditional medical conditions, heard about cannabis, knew it was illegal, but didn’t know how to go about learning whether it was appropriate, how to access it, which was the right strain for them. Is that the foundation, the premise upon which National Access Cannabis actually started?

Mark Goliger: Yeah. Back in 2014, 2015, we pioneered with our first medical clinic that was under one roof having doctors and educators support patients so that they would gain knowledge. When you look at the history of that kind of sector of that beginning for our company and others, there were very few doctors that were comfortable with cannabis at that point. So it was giving them a roof by which they could operate, as well as to get patients exposure to doctors who knew something about cannabis and were willing to prescribe it.

So that’s kind of the starting point in history. We grew across Canada with a fairly large footprint of clinics; at one point we had 11. That put different flags on the map and gave us experience with cannabis, and then we knew we wanted to pivot into recreational so that we could bring, you know, health and wellness concepts and knowledge about cannabis to create safe and responsible distribution through retail environments. We won the RFP in Manitoba; we were one of four proponents who did receive, in this case, a quarter of the province, and that was kind of our first mover into rec retail. And then we were lucky enough to get 14 licenses in Alberta under a brand called New Leaf before there was the moratorium on licenses and they kind of shut down. Which at that point, and I guess currently, puts us at about 20 percent of the Alberta market, and I think 33 percent of the Manitoba market right now.

James West:   And your last reported quarter was no small thing by any stretch. You reported revenue of 3.8 million and a modest loss per share, but so at what point enterprise become profitable?

Mark Goliger: Well, we press released on our 80 days of legalization that we hit 10 million in revenue, so that is public knowledge. Of course, that was quite a bit ago. We’re seeing climbs in revenue per store, per province –

James West:   So this is in the subsequent quarter?

Mark Goliger: So the way our fiscal quarters are, we have September, October, November, and now we will have a much better quarter when we’re showing December, January and February results.

James West:   Because it includes those 81st days of legalization?

Mark Goliger: Well, it includes that, for sure, and we have many more stores that we’ve added to our footprint. So I have to be careful on what I disclose, but I can say that our second quarter will be much better than our first quarter, and we are showing great growth.

James West:   Right. Interesting. So is there a reason for an investor to be attracted to this more so than to investing directly into an LP?

Mark Goliger: Yeah. I think that right now, a lot of focus has been on licensed producers and that side of the industry, the upstream component of cultivation. There’s been some focus on mid-stream, on production. But there hasn’t been enough focus on retail. But if you look at the pull-through from retail, we really control a lot of the vertical nature of the industry, because if we don’t pull the products, then they don’t reach our shelves, they don’t reach consumers.

So retail is a very important part of this industry. There hasn’t been a lot of attention there. So as far as a share is concerned, we do, of course, like everybody, feel like we’re undervalued, but with numbers that we have shown and numbers that we’re going to show, we are comparable to some mid-level LPs, yet we haven’t reached their same kind of valuation point.

So I think our stock and our, call it, downstream side of the industry is something that investors should start paying more attention to, because we’re going to play a more and more important role, especially as you see LPs start to consolidate and some LPs start to fail as well, because they’re not being able to get their, you know, kind of future story to line up with their present-day reality.

James West:   Right. Which one’s going to fail first?

Mark Goliger: Oh, man.

James West:   [laughter] I’m not going to put you on the spot.

Mark Goliger: Well, hey, look, I want more friends, I don’t want more enemies.

James West:   [laughter] Right. Okay, so, how do you continue to grow this company if there’s sort of a limited number of storefronts available in each province?

Mark Goliger: Sure, yeah, good question. So there’s a multi-strategy approach here. One is, improve per-store revenue, which of course we can do as we improve supply, which is a pull-through to the province; getting the right stuff on our shelves to make sure that we’re maximizing inventory turnover.

Increase our footprint, so right now, we’re sitting at 24 if you include Saskatchewan; we have goals to be right across Canada in all the provinces that they will accept private retailers. We assume that that will be around 135 over the next, let’s say, two years, depending on licensing, of course. So that will be significant growth.

And then, our medical side as well. We have now 145 pharmacies under contract; we plan to grow that exponentially over the next year and start creating an improved medical channel through pharmacies instead of just through clinics, as we know over time, pharmacies are going to dispense this medication. There’s no other product that I know of that isn’t dispensed through pharmacy, that is considered a medicine.

So we have that program, and then looking internationally as well at where can we take our business system and business model and export it, either through licensing, joint ventures, or just organic growth into new medical markets: Australia, New Zealand, Germany, the UK, South America…the world’s really opening up, and I think that a strong Canadian company with a great story line and a strong business system can do quite well, assuming that we don’t box ourselves in to Canada or Canadian regulators box us in.

James West:   Right. So is that, then, the large part of the growth strategy an international one?

Mark Goliger: Well, I think if you look at revenue generation over 2019, a majority of our revenue will come from recreational retail domestic storefronts, growing out, taking 24 and hopefully doubling it over this calendar year. Of course, that’s subject to the licensing authorities providing licenses; we’ll produce very good revenue streams, and ultimately running efficient operations will lead to good EBITDA numbers.

When you look at the long term, there’s a significant opportunity on the international medicinal side.

James West:   Right.

Mark Goliger: But, you know, it’s going to take a while for Australia to come online and really reach the stage that Canada is at currently, and same with Germany, same with these other markets. So it’s more of a first mover strategy to create a foothold within these different locations as they figure their stuff out.

James West:   In Europe, what is the status? What’s the progress of legalization? Like, I know the UK recently flip-flopped from ‘never going to happen’ to ‘okay, here’s three licenses’. Germany’s been a long-term advocate for medical, but they’ve still only got 30,000 patients country-wide. Why is this, whereas in Canada, it’s sort of, it started at a quick pace and the pace only accelerated; why is it that in Europe the pace has sort of, it’s kind of there, but it’s really not there?

Mark Goliger: Well, I guess to say that we’ve gone quite quickly, you’d have to look at the history. Would we say we went quite quickly in the last four years, but the 14 years before that was quite slow? When did we really start talking about medicinal cannabis? Was it in 2001? I think there’s different arguments that you can make.

I think that because of the pressure that’s coming out of Canada and other markets, some of these international players that you mentioned are playing catch-up. And when you have big companies like we have here in Canada putting pressure through government relations and through industry relations into those countries to try and gain this risk-board-esque market first mover advantage, you start to find that they’re trying to play catchup and make sure that they have an industry.

So I guess that’s a long-winded answer saying there’s different and new pressure points that are being pushed on to these different opportunities, let’s call them, where we didn’t have them when you look back on our history, because there wasn’t a Canada-type industry that was legal that was forcing those changes.

James West:   Okay, that’s a good answer. I want to ask you in closing: what is the number one reason that, as a cannabis investor, I should be considering National Access Cannabis right now?

Mark Goliger: Well, there are a lot of things I’d love to talk about, but they haven’t been press released, so I have to be careful. I think that, just on the surface of things, if you look at our footprint and you look at our revenue that we’re going to be able to build as a system, as it’s getting exponentially bigger as our stores are starting to mature and new stores are coming online, you know, 2019 is really about revenue generation for LPs, for producers for downstream as well; and we have the footprint that can generate those type of revenues.

And then ultimately, 2020, like for all companies, we’ll focus on the actual EBTIDA and earnings per share.

James West:   Okay. Great, Mark, we’re going to leave it there. We’ll come back to you in due course; thanks for your participation today.

Mark Goliger: Thank you very much.

Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

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