Auxly is creating a world-class platform by forming partnerships with best-in-class cultivators, product innovators, and developers, researchers, and marketers. The company provides its partners with ongoing cornerstone support in cultivation, regulatory, construction, retail, branding and financing to help them realize their full potential. Auxly directly and indirectly through its investment in ICC International Cannabis (CSE: WRLD) has a presence or access to 22 countries.
The company’s stock has unsurprisingly found enormous strength in the recent past. It has been powering due to the favorable impact of the company’s positive announcements about the development of its assets and partners along with the growing popularity of the industry. All the above have positioned the company for the future as it continues to execute on its vertically integrated strategy.
Auxly continues to build out its platform at an industry-leading pace and make progress on the development of its assets and partners at all touch points of the cannabis value chain. The management continues to make several strategic additions to the overall platform in line with the company’s domestic and international expansion plans. Analyst tracking the stock are extremely bullish about the steady progress Auxly have made in the recent past as the Company works towards achieving its long -term strategic goals.
- On Jan 24th, the company announced that it had signed a definitive agreement with 2368523 Ontario Limited (d/b/a) Curative Cannabis (“Curative“). The Company will acquire 46% of the common shares of Curative and enter into a long-term cannabis purchase and sale agreement to fund the construction and development costs of Curative’s cannabis cultivation facility in Chatham-Kent, Ontario.
- On Jan 9th, the company announced that further to its previous releases, it had completed the acquisition of 80% of the outstanding common shares of Inverell S.A. The Transaction positions the Company as a leader in the global CBD economy with a highly efficient, low-cost source of cannabinoids for international distribution, including through the Company’s strategic partnership with ICC International Cannabis Corporation Inc. (CSE: WRLD) which provides the Company with access to 16 markets through a network of 35,000 pharmacies. Importantly, the low cost, high purity CBD produced by Inverell gives the Company a long-term and stable supply of CBD to support the research, development, and manufacturing of cannabis-derived products at Dosecann Inc., the Company’s wholly-owned Licensed Processor facility located in Prince Edward Island, Canada.
Key Financial and Operational milestones in 2018
- Positioned Auxly as a vertically integrated cannabis company with wholly-owned assets at each segment of the value chain
- 5 wholly-owned subsidiaries and 13 streaming partners**
- Auxly strategically organized into three segments of the industry value-chain: Upstream, Midstream, and Downstream
- A significant working capital balance of $303M, inclusive of a $115M bought deal financing led by BMO Capital Markets
- A fully Funded capacity of 160,000kg per annum by 2021
- Expanded Internationally with the acquisition of Inverell S.A.
** The Inverell acquisition remains subject to final regulatory approvals in Uruguay
Analyst Views: Analyst tracking the stock and the industry believes that the Auxly platform is about more than just deploying capital, as the company is diversifying its streaming deals and have developed the ancillary tools and infrastructure to make those streams successful. Consequently, the company’ is well positioned to capture high-margin segments of the market through extracted products, infused functional foods and Natural Health Products. Considering all this, the company is in an extremely favorable risk-reward position, and value investors should consider exposure in this sector as the backdrop remains exceptionally favorable.
About the company: Auxly is a vertically integrated cannabis company with diverse operations across Canada and Uruguay. The company was formed with the primary intent of providing financing solutions to cannabis license applicants and has evolved into a platform spanning the entire cannabis value chain. Auxly’s management believes that a vertically integrated model, adapted for the cannabis space, allows for substantive control over its operations through increased operational flexibility, economic resiliency, and improved product margin dynamics in an effort to create long term shareholder value. Auxly currently operates three distinct, yet synergistic, segments:
- Upstream – Auxly’s diverse cannabis cultivation platform across its streaming partners, joint ventures and wholly-owned subsidiaries;
- Midstream – Auxly’s processing and development platform focused on the development of proprietary cannabis-derived products and related intellectual property to address consumer needs through its wholly-owned subsidiary, Dosecann; and
- Downstream – Auxly’s medical, recreational and international distribution platform.
Cannabis Industry Overview: The legalization of an existing market is predicted to reap enormous benefits.
- CIBC World Markets believes that the cannabis market will reach $6.8 billion by 2020, outpacing the spirits industry
- The overall industry is projected to generate $1 billion in EBITDA in 2020 with manufacturing companies accounting for over 85% of it and retailers accounting for the remaining 15%
- Active M&A market as companies look to create vertical integration partnerships similar to Auxly + Dosecann
- Similar to the alcoholic beverages industry, brand loyalty and repeat customers will be crucial in obtaining market share
Projected Stabilized Values By 2024 ($ Billions in Revenue)
Third Quarter 2018 Financial Results
Commentary on the recent financial release: The further progress highlighted the third quarter of 2018, Auxly has made in developing its assets and securing new accretive relationships across all of its business channels. The company is increasingly differentiating itself through its focus on science-driven product innovation at Dosecann. Auxly have assembled a world-class team and have continued to invest in the infrastructure and strategic initiatives that it feels will best position Dosecann to be a leading player in the product development and a manufacturing segment of the cannabis market
Robust Liquidity and financial flexibility: The Company maintained a strong balance sheet and liquidity position with $236,920,000 in cash and cash equivalents at the end of the third quarter earmarked for funding Auxly’s streaming partners, wholly-owned subsidiaries, downstream distribution efforts and general and administration costs. The increase in the cash and working capital balances are attributable primarily to the Company raising $215,115,000 in debt and equity financings year to date in addition to raising $95,017,000 in warrant and broker warrant unit exercises. During the nine months ended September 30th, 2018, cash used in investing activities totaled $75,307,000 which includes strategic investments made in subsidiaries, streaming partners and strategic partners.
Key risk factors and potential stock drivers:
- Licensing Risk – While the number of LPs continues to climb, sales approval remains a significant constraint to supplying the market. Despite Health Canada’s “expedited licensing,” it is estimated that Health Canada has approved less than 4% of all licensed producer applications. Regulatory uncertainty is obstructing some LPs ability to make definitive expansion plans
- Scaling Problems – Cannabis is a difficult plant to grow at scale while meeting Health Canada quality standards, and no LP has yet demonstrated the ability to cultivate cannabis on a large scale
- Auxly is on the verge of seeing stable and meaningful results from their current investments. Analysts remain hopeful that these payoffs will take shape quite soon and remain bullish about the stock price.
- Auxly is still an early stage company and will likely operate at a loss as it grows its market position and seeks ways to monetize it. Therefore, its ability to maintain liquidity and financial flexibility to fund its incremental capital requirements will remain a challenge for the company.
- Notwithstanding recent positive developments, Marijuana remains illegal under federal law. It is a Schedule I controlled substance. Even in those jurisdictions in which the use of medical marijuana has been legalized at the state level, its prescription is a violation of federal law.
- On Friday, February 2nd, 2019, CBWTF closed at $0.7145, on an above average volume of 1.07M shares exchanging hands. Market capitalization is $428.383 million. The current RSI is 56.86
- In the past 52 weeks, shares of CBWTF have traded as low as $0.4440 and as high as $1.60
- At $0.7145, shares of CBWTF are trading above its 50-day moving average (MA) at $0.64 and below its 200-day moving average (MA) at $0.83
- The present support and resistance levels for the stock are at $0.6810 & $0.7608 respectively.
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