According to efficient markets theory, the chances of finding hundred-dollar bills lying on the ground are slim, at best. When one is dropped, some well-informed investor is quick to pick it up. However, with Abcann Medicinals set to launch its initial public offering (IPO) on the TSX Venture Exchange on May 4, the chances of finding those elusive hundreds have increased significantly. Investors will have an opportunity to take up shares in one of Canada’s major legal cannabis producers. With the marijuana recreational market in Canada set for legalization, the Abcann Medicinals IPO will level the playing field and offer to the public a chance to multiply their dollars into hundreds.
Abcann Medicinals, which will trade under the symbol ABCN, may be new to the public markets, but the company is a veteran in the industry. It was founded in 2014 by Ken Clement, who observed the lack of quality and consistency in the medical marijuana available and the resulting variability in dosages that posed risks to achieving effective therapeutic regimens. He vowed to “to deliver consistent, standardized medicinal cannabis that the public and patients can consistently rely on.”
That promise has certainly been kept. With technology that controls air quality, carbon dioxide and oxygen levels, water quality and volume, light spectrum and cycles, temperature, humidity, plant nutrition and a climate-controlled curing process, ABcann produces a consistent, organically grown, pesticide-free, standardized product. In an interview earlier this year (http://nnw.fm/ER7sf), CEO Aaron Keay posited that the ability to produce consistent quality as it scales up is one major advantage that Abcann has over its competitors.
The other major advantage is that Abcann is one of only a handful of currently licensed producers operating in an industry with significant barriers to entry. Prospective new players must face rigorous screening by Health Canada, and 97 percent do not make it through. Since 2013, Health Canada has received about 1,600 applications but has approved only 41 so far. Trying to enter the Canadian marijuana market is risky business, particularly since a license will be granted only after a facility is built.
However, ABcann’s cultivation facilities have already been approved and are in operation. Presently, its 14,500 sq ft facility in Napanee, Ontario, produces 1,000 kg annually. The proposed expansion will involve a 150,000 sq ft facility with a production target capacity of 40,000 kg per annum. The company also has a total of 65 acres of serviced industrial zoned land, which can accommodate a production facility of up to 1.2 million sq ft.
Abcann, which commenced sales of medical marijuana in June 2016, is poised for rapid ascent after its IPO if the competitive landscape is anything to go by. Canopy Growth (TSE: WEED) climbed 711% after its IPO, and Aphria (TSE: APH) rose 938% after its debut. Aurora (TSXV: ACB) went up 887% after it hit the public markets, while SupremePharma (XCNQ: SL) soared an astonishing 1,364% after its launch.
Abcann plans to use part of its IPO proceeds to increase production by 20 times from the current level. Medical marijuana has been legal in Canada since 2001, regulated through Health Canada, a Canadian federal government agency. However, the industry really took off in 2014 when a commercial market was launched. Now, with adult use to be legalized by July 1, 2018, the Canadian marijuana market is expected to mushroom to about $8 billion in sales by 2024.
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