The Hydropothecary Corporation (TSXV:$THCX) is becoming a company to watch for investors. Here’s why.
Quebec currently has two licensed producers of cannabis, one of which only produces LP and has only just received its license. The other belongs to THCX, an established and well-financed publicly listed cannabis producer. By comparison, Ontario has 40 licensed cannabis producers.
Why should this matter? It matters because consumers have preferences, and generally speaking, those preferences mean buying from local businesses, a sentiment prevalent in Quebec. This means that Quebec residents prefer dealing with Quebec businesses, and THCX is one such business, giving it a competitive advantage.
Quebec also has the lowest hydroelectricity rates for any agricultural production in Canada, meaning that THCX has a significantly lower energy cost than any other Canadian cannabis company. This makes THCX an industry leader in terms of low cash costs for cannabis production. In fact, THCX is one of the Canada’s lowest cost cannabis producers.
CEO of THCX, Sebastien St. Louis, commented on how Hydropothecary is pushing to become Canada’s lowest-cost producer, “The cannabis industry is moving into the next phase of its evolution – out of the barrier-to-licensing phase and into the capital deployment phase. The capital deployment phase will be marked by large well-financed licensed producers rapidly expanding their production capacity to meet the demand for recreational cannabis. Companies competing in the capital deployment phase will face strong cost pressures and will see their margins shrink in the face of competition from large-scale producers. We see this coming, and this is why cost efficiency has been a priority for THCX, and why our Quebec advantage positions us for success in the recreational cannabis market.”
THCX carries four brand lines of cannabis products, with the sales of these products at an average price of $9.00/gram, giving them strong sale margins and revenue growth.
These margins also indicate product quality and THCX’s focus on product innovation, such as their commitment to shipping all dried flower products in glass jars instead of plastic bottles, the only company in Canada to do so. THCX relies on independent, third-party testing for all their products, and they were also the first licensed producer in Canada to obtain a kosher certification for some of its products.
THCX was also the first licensed producer to have a cannabis resin sales license, allowing it to sell extract to other licensed producers.
With a range of innovative products, from Decarb which is placed in easily digestible capsules to Elixir No. 1, a misting spray product, THCX shines in its attempts to be consumer-friendly.
THCX has also positioned itself for recreational-use cannabis in Canada, knowing that the federal government has committed to the national legalization of recreational use. It has been estimated that recreational use in Canada will become an $8.7 billion market, according to a 2016 report from Deloitte. PI Financial has released a more recent industry report, stating, “Based on our projections, we believe the Canadian licensed producers will need to cultivate an aggregate of 610,000 kg of cannabis to fulfill the demand for domestic and export demand in 2019. Last year’s total estimated production of 31,000 kg [2016] represents just 5% of this total.”
In order to reach this upcoming demand, THCX will be gearing up its cultivation capacity. The company is pushing for a major expansion of its facility, growing by 250,000 square feet from its original size to a total of 300,000 square feet, with construction scheduled to be completed by July 1, 2018 (which is also the day that legalization of recreational use cannabis is due to come into effect).
This expansion will mean that it will be able to produce an annual cultivation capacity of 25,000 kg of dried cannabis, as opposed to its current annual cultivation capacity of 3,600 kg. 25,000 kg of cannabis production has a revenue potential of $225 million.
Compared to other companies, THCX stands out because it is one of Canada’s lowest cost cannabis producers, it is strategically positioned in Quebec, it has a broad and innovative product line, it has robust margins, there is an aggressive and fully-funded expansion plan in place, and it has a value-packed market cap of $220 million.
Investing in THCX means all of what has listed above, and it also means investing in Canadian jobs, due to the fact that THCX is a significant employer in the Gatineau area, and is, in fact, one of the largest in the region.
CEO St. Louis offers these final thoughts for investors, “When you factor in THCX’s competitive advantage, our current expansion, our robust financing and, our focus on product innovation, THCX is positioned for success in the next stage of the cannabis business. As we continue to bring innovative products to market, we are confident in our ability to become a leading cannabis brand, here in Canada and on the global stage.”
Put together, THCX is a company to watch. It consists of a strong management team and has consistently put out very impressive numbers. The market, it seems, is finally figuring this out.
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