RotoGro becomes a cannabis triple threat
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Special Report: RotoGro International is establishing itself as a triple threat in the sizzling Canadian marijuana sector, after signing on the dotted line to buy a licensed Canadian Cannabis Processor.
The company (ASX:RGI) is buying 100 per cent of cannabis extracts and oils processor Supra THC Services and its Health Canada issued Dealers Licence for $C11m ($11.9m).
The acquisition gives the company a unique advantage over its Canadian competitors and Australian peers.
RotoGro already boasts patented stackable hydroponic rotary garden technology complete with their own proprietary software; that produces multiples more yield per square meter than traditional flatbed growing as well as a specialised water treatment and nutrient management agribusiness.
Now, RotoGro also has the legal ability to produce its own cannabis products in Canada’s recreational cannabis market, positioning it as a rising star in the Australian listed cannabis space where many local companies face the hurdles of clinical trials and Therapeutic Goods Administration requirements to get a product to market.
“The acquisition of Supra THC is a massive step forward in the company’s strategic growth to establish itself as a global leader in the cultivation of cannabis and perishable foods,” said RotoGro managing director Michael Carli.
“In addition to initiating dialogue with Health Canada, we have identified premises where we wish to establish our cannabis operations (which are in proximity to our current facility located in Caledon, Ontario) and the design of layouts for these premises has already begun with Cannabis Compliance Inc.; the leader in this space for Canada.”
The best deal
The deal itself will allow RotoGro to become a cannabis cultivator for very little money down – just 10 percent – with the remaining split across three milestones.
Furthermore, all payments are comprised of 80 percent in stock, priced at 40c a share, and 20 per cent in cash.
Supra THC currently has a Dealer’s License, which allows it to possess cannabis and the production of extracts for the purpose of analysis.
As part of the deal, however, RotoGro pay a further 10 percent on the change of facility address and license ownership, 30 per cent payment upon Supra THC converting the existing Dealer License over to a Standard Processing License and the remaining 50 percent on the addition of Cultivation to the License.
The deal also gives RotoGro a ready-made offtaker in Valens GroWorks who will collaborate on an offtake agreement for the sale and purchase of cannabis produced at the new RotoGro facility.
“The long-term commercial opportunities for offtake agreements and further innovation are a “win-win” for our respective company’s shareholders as we look to the future of our long-term investment and working relationship,” said Valens CEO Tyler Robson.
He said their key personnel had spent considerable time at RotoGro’s facility in Caledon, Ontario and were “extremely impressed”.
“In addition to the yield and cost-saving advantages of RotoGro’s technology, we are extremely excited about the application of RotoGro’s technology to the indoor vertical farming space and the impact this will have on RotoGro’s future prospects,” he said.
Watching the recreational market
For months, analysts have been flagging a huge supply gap for when recreational cannabis became legal in Canada.
Government statistics show suppliers had 66,404kg of dried cannabis flower in their inventories at the end of June and 30,292kg of cannabis oil.
Cannacord analyst Matthijs Smith estimates the annual recreational market could be around 585,000kg.
Another forecaster, the C.D. Howe Institute, believes current supplies will meet only 30 to 60 percent of nationwide demand which is estimated to be 610,000kg per quarter, yet the forecasted available lawful cannabis supply for the fourth quarter of 2018 is merely 146,000kg.
As a result, companies like RotoGro that are able to tap that market are expecting a windfall.
A recent Deloitte report put the Canadian opportunity at about $7.17 billion in total sales, both legal and illegal, in 2019. A little over half of that should come from legal sales.
More than 100 legal cannabis retail outlets were expected to open across Canada during the month of October.
RotoGro is a Stockhead advertiser.