RavenQuest BioMed (CNSX:RQB) Profits From Sustainability and Focus on ‘Volume’ instead of ‘Area’
RavenQuest BioMed Inc (CNSX:RQB) (OTCMKTS:RVVQF) (FRA:1IT) has become famous as the Vancouver headquartered company, which has partnered with First Nations in Alberta interested in the cannabis industry. The company has also pioneered the practice of ‘Orbital Gardens’ and large scale rotational growth technology. These are two of the main reasons why investors should pay attention to Ravenquest.
The establishment of partnerships with First Nations represents a significant ‘sustainability’ benefit. One often hears about ‘sustainability’ in the environmental context, but there is an important socio-economic aspect, which is often overlooked. Indeed, Ravenquest’s approach vis-à-vis First Nations generates upside, while reducing overall risks, starting with a reduction in taxes. Simply put, GST and PST do not apply on sovereign land, shaving some 22% savings in tax from the start. This is a unique advantage, lowering margins compared to competitors and effectively reducing capital costs needed to build out their facility and launch production. On the sustainability side, allowing aboriginal people an opportunity to participate in the fast growing cannabis industry, represents an opportunity for reconciliation. Ravenquest makes no secret of the fact that this is one of its goals. Working directly with the Native community allows for a better understanding of the medicinal potential of the plants. And the partnership arrangement – allowing First Nation entrepreneurs for no less than 51% ownership gives that same community control over the product. Fort McMurray First Nation 468, Alberta, aims to build a plant (on reserve) capable of producing some 15,000 kilograms per year, in partnership with Ravenquest.
In other words, Ravenquest is not merely playing a good PR game; the company really does want the Native community to benefit from the project and boost its economic sovereignty.Seemingly, not relevant to investors, such a goal reflect the fact that the company boasts superior management. From a purely hard-nosed business perspective, the main reason why investors should welcome and feel confident about a company adopting a sustainability target is that it shows that management has considered risks and opportunities from all possible angles. Evidently, this demonstrates a long-term commitment to Ravenquest’s success. Ensuring the company establishes and maintains a mutually beneficial relationship with the local community represents the foundation of any business.
Whereas, sustainability, in the form of community relations offers a hint that Ravenquest can rely on superior management, the adoption of efficient ‘Orbital Gardens’ production technique confirms it. This allows for the production of large quantities, as much as 300 grams per square foot, of cannabis in a smaller space, maximizing productivity (the industry average is about half that). More kilos of cannabis in less space: this allows for as much as 65% less energy consumption as there’s less ‘area’ that requires climate control. Simply put, the technique allows for the exploitation of the volume rather than just the area. Cubic meters are more cost efficient than square meters in the Cannabis space. Greenhouses, rely on ‘area’; and on average, they use some 5.5 MW. Of power to produce 10,000 Kg. Ravenquest uses a fifth of that power, 1.1 MW to produce the same 10,000 Kg. Kilo for kilo, the production costs are lower and the profitability potential much higher than a standard greenhouse based competitor.
The productivity gain allows to more easily pursue partnerships in geographic regions where demand for product is high, where space is at a premium and where energy costs are higher. It turns out, Europe is one such market: Ravenquest has a deal to form a joint venture with Norway’s Cannabis Biocare A/S (“Cannabis Biocare”), which will set up its facility around the Orbital Garden grow technology model in selected facilities, aiming to deliver some 35,000 kg. of cannabis a year by 2021.Europe is the fastest growing cannabis market and the one with the most potential sales, given the high population density and historically high demand. Ravenquest is also establishing an important presence in Portugal, the country with some of the most advanced legislation in the world when it comes to cannabis. Through a joint venture with the Norwegian partner, two locations, in Lisbon and Porto respectively, will establish 1,800 vertical gardens to produce 35,000 kg. of cannabis per year by 2021. The European Heads of Agreement states that RavenQuest will provide its grow technology and IP while Biocare will provide all funding for the projects . Proceeds of the JV will be split 50.50.
Finally, Ravenquest has focused its attention on Alberta and the once oil-boom town of Edmonton, where the company is rapidly ramping up a production, which is on track to produce some 11,000 kg. of raw cannabis (in annualized terms, or 6,000-7,000 kg by end 2019), which bodes well for profitability prospects. CEO George Robinson told MidasLetter that by end of 2020, the company can expect EBITDA of 28-42 percent.
Ravenquest will supply to both the medical and recreational markets. Strategically, the recreational market portion of sales will increase as Provinces deploy the relevant legislation. After all, the regulatory framework governing recreational marijuana continues to evolve. As for financing, the cash-flow positive Ravenquest has just raised about $2.5 million, even as the company already had sufficient sums to pursue its growth goals. Not only does Ravenquest have enough to build out the ‘gardens’ it needs – the gardens for the European JV are prepaid, and all facilities within Canada are already built.
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