VANCOUVER, British Columbia, May 13, 2014 (GLOBE NEWSWIRE) -- Needless to say, the M&A activity in the Medical Marijuana space is only going to pick up speed. Less than six weeks since the new Federal rules kicked in, companies are moving quickly to position themselves in this explosive market.
Since 2001, Canadians have had access to medical marijuana. However, it is only now that the market has been commoditized with the introduction of the Marijuana for Medical Purposes Regulations (the "MMPR"). These new regulations have created a marketplace whereby an estimated 450,000 users will come to purchase medical marijuana by 2024. Anecdotal evidence suggests a good portion of that growth will be in the next 1-2 years.
Supreme Pharmaceuticals (SPRWF – OTC) (SL – CSE) Management stated: "We are extremely excited to acquire, if not the largest, one of the largest producers in North America and move towards potentially becoming Canada's leading MM producer. The MMPR license is the most highly sought-after cannabis license in the industry and we have an exclusive LOI in place to purchase a large-scale business. The company is very fortunate to have obtained what we believe to be one of the largest licenses in the country."
As with any MMPR license, there are stages. The Supreme deal notes that the acquired facility, originally constructed by Agriculture Canada, in Southern Ontario, is at the 'approved pre-build' stage. The final license will be granted once the existing facility undergoes the required security upgrades as set out by the license by the end of Q3 2014. Under the terms of the license, it allows for the 342,000 square foot facility to produce up to 24,000,000 grams (24,000 kilograms) per year. Supreme has paid $250,000 against a $4.5 million purchase price to be satisfied over 2 years.
The license covered by the Supreme LOI is unique. The Southern Ontario facility was able to grandfather its license for approval before a rumored size restriction, meaning that all 342,000 square feet can be used to grow medical marijuana: Undoubtedly a major competitive advantage for Supreme. Once security measures are installed the facility will be eligible for the final license. Supreme believes that revenue generation will commence within 6 months of final licensing.
Tweed, arguably Canada's best known MMPR producer, currently has a market capitalization of $122,160,000 with a capacity to produce 15,000 kg per year. Supreme, with a current market cap of roughly $8 million, has strategic plans to become one of the paramount commercial producers in the Country.
Once concluded, Supreme will have 100% ownership of the facility. The deal will be in shares and cash, and the target company shareholders will receive a 45% equity position in Supreme.
Management states: "This acquisition positions Supreme in BC and Ontario, extending our National reach. We believe the transaction provides significant and compelling upside potential and is focused directly on our mandate to build consistent value for our shareholders."
Medical Marijuana is a relatively new product and it does not appear to have found its equilibrium price as of yet. Further complicating matters is the fact that as of late 2013 prices vary radically from one region of Canada to another.
Six important pricing benchmarks that Supreme has its eye on are:
- $7.60/gram, the average price estimated for 2014 by Health Canada.
- $8.00-10.00, the prices proposed by the current producers of medical marijuana
- $5.00/gram, the highest price tracked by Health Canada under the old legislation
- $2.52/gram, the cost of an equivalent dose of the most common opiate-based prescription Painkiller.
- $1.80/gram, the lowest price tracked by Health Canada under the old legislation.
- $0.82/gram, Supreme facility's marginal production cost.
Supreme plans to sell the highest quality portions of each plant at an estimated price of $8.00/gram, which provides a handsome rate of return while remaining competitive in the marketplace.
This deal is likely a template that investors will see in the future, both by Supreme and others. What makes this deal powerful is the potential grandfathering of the large facility. With the regulations rumored to be capped at 100,000 sq. ft. per facility for new licensees, this acquisition potentially gives Supreme, in one facility, the equivalent of almost 3.5 times the regulated size.
Add to that the fact that it will be producing by the end of the year just as demand takes off, it's yet another reason investors need to keep an eye on Supreme. While this is a large deal, it likely won't be the last.
Supreme Pharma trades at $0.05 with a market cap of $8 million.
Legal Disclaimer/Disclosure: A fee has been paid for the production and distribution of this Report. This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. No information in this article should be construed as individualized investment advice. A licensed financial advisor should be consulted prior to making any investment decision. Financial Press makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of the author's only and are subject to change without notice. Financial Press assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this article and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, we assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this article.
Also, please note that republishing of this article in its entirety is permitted as long as attribution and a back link to FinancialPress.com are provided. Thank you.
Supreme Pharmaceuticals Inc. Suite #430, 580 Hornby Street Vancouver, BC V6C 3B6 Email: Phone: 647-340-6744
