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One of the most significant themes of the cannabis industry is related to Canadian market and the rollout of new products. This opportunity is being referred to as cannabis 2.0 and we believe that this represents a major growth opportunity for companies that are levered to it.

Cannabis 2.0 covers a wide range of cannabis derivative products such as cannabis infused products (edibles and drinkables), vape pens, cannabis concentrates, and more. One of the reasons we are excited about this vertical is related to the higher margins that are associated with these products. Another reason we are excited is due to the amount of consumer demand for these products.

Going forward, we expect cannabis 2.0 to serve as a major growth driver for the Canadian market and believe that our readers need to be aware of this. The Canadian cannabis industry is in the middle of a major transformation and we expect the industry to look much different one year from now. Today, we want to highlight 5 companies that are positioned to benefit from the changing landscape of the industry and are executing on this opportunity.

A Leading Play on the Cannabis 2.0 Market

Namaste Technologies Inc. (N.V) (NXTTF) has already been capitalizing on the cannabis 2.0 opportunity in Canada. The company’s wholly owned subsidiary, CannMart, has been nothing short of an execution story when it comes to investing in and partnering with leading cannabis brands.

One of the most exciting aspects of the story is related to CannMart’s involvement with Choklat, an Alberta-based craft chocolate manufacturer. Last year, the company acquired a 49% ownership stake in Choklat and has played an important role in the rollout of the brand. Namaste recently announced that Choklat was granted a processing license from Health Canada to produce a line of chocolate bars, drink mixes and infused sugar. The granting of the license represents a substantial development for the business, and we are monitoring this aspect of the story on a going forward basis.

One of the reasons we are excited about the investment and relationship with Choklat is related to the existing demand for the product line. Choklat has been selling non-infused products through its e-commerce platform and through a network of distributors across Canada. In preparation for the legalization of cannabis derivative products in Canada, Choklat has been executing on a multi-faceted expansion strategy and has non-infused products available in 150+ retail outlets across Canada, including an increasing number of Safeway and Sobeys stores in Western Canada.

Another reason we are bullish on Choklat is related to the work that the brand is doing in the US. Choklat has also applied for and received its FDA number for the sale of non-infused chocolate bars in the US and we find this to be significant when it comes to the long-term opportunity. Once cannabis is legalized at the federal level in the US, CannMart can pivot its model to include THC products and we are bullish on this.

Through CannMart, Namaste is well positioned to capitalize on the cannabis 2.0 opportunity, and we believe that the market does not fully appreciate this aspect of the story. Over the next year, we expect Namaste to record strong growth from the 2.0 opportunity in Canada and expect CannMart to be the primary driver of this. When compared to its peers, Namaste is trading at a substantial discount and we are favorable on the risk-reward profile. The company has a strong cash position and we believe that this aspect of the story is not fully understood by the street.

A Cannabis Brand Story that is Generating Traction

One of the companies that are positioned to capitalize on the changing landscape of the Canadian cannabis industry is Shelter. The company initially made a splash after reporting to have completed its first deliveries under a cannabis 2.0 white label agreement with MediPharm Labs Corp. (TSX: LABS) (OTCQX: MEDIF).

MediPharm has been a leader in the Canadian cannabis concentrate market and we are bullish on the growth prospects associated with the relationship. Shelter is a consumer-focused brand and packaging development company that has, with its partners, created quality cannabis pre-rolls and vape pens under brand names Wildlife, Journey, Botany and Wayfarer.

Through the relationship with MediPharm, Shelter will receive high-quality cannabis extracts, filling services and national distribution for its Wayfarer line of vape cartridges and other future contemplated brands. Shelter created the Wayfarer brand for consumers that are looking for a premium product and we expect to see it gain traction on the Canadian market.

During the last year, Shelter has been highly focused on executing and advancing its fundamental story. From a management team standpoint, we are impressed with the operation and the recent additions to the team. Shelter’s management team is comprised of executives with differentiated expertise and a proven track record of success in the cannabis industry. We find this to be an important aspect of the story since the management team understands the landscape of the Canadian cannabis market (as well as the market’s limitations).

Over the next year, we expect Shelter to record strong growth as it brings new products to markets and signs additional strategic distribution agreements. We believe that the relationship with MediPharm will be a major catalyst for the business and believe that this is an opportunity to be watching.

A Pre-IPO Cannabis 2.0 Brand that is Positioned for Growth

Last year, we visited Pure Extracts’ cannabis extraction facility that is located outside of Whistler and were impressed with the structure of the operation. In the coming months, the company is expected to complete a go public transaction and commence trading on the Canadian Stock Exchange (CSE).

Over the next year, we expect to see Pure Extracts bring products to market and believe that it has visible catalysts for growth. Following the completion of a private placement offering, the company has significantly strengthened its strong balance sheet and is well positioned to execute on its growth strategy.

From a timing standpoint, we believe that Pure Extracts has had the right approach and is being patient with the market. We are of the opinion that this strategy will pay off over the long-term and will monitor how the story continues to evolve.

From a licensing standpoint, the next few months will be significant for Pure Extracts and the company expects to receive all the necessary production equipment in March for final commissioning. The company is negotiating for large volume extraction contracts, for royalty agreements with a leading gummy brand, and for retail distribution agreements with provinces.

From a management standpoint, we are favorable on the recent additions to the team as well as the hiring of Andy Gauvin as the Head of Sales. Going forward, we believe that Pure Extracts is a story to be watching and are of the opinion that it is not even in the first inning of a major growth cycle.

A Differentiated Growth Opportunity

When analyzing the companies that are positioned to benefit from the changing landscape of the Canadian cannabis industry, we are looking for differentiated opportunities. Cardiol Therapeutics Inc. (TSX: CRDL) (OTCQX: CRTPF) is highly levered to the Canadian cannabis market and we expect the business to record strong growth over the next year.

Last month, Cardiol reported a major development and announced that its exclusive manufacturing partner, Dalton Pharma Services, has received a three-year renewal and license amendment of its Cannabis Act Processing License from Health Canada. We believe that Dalton represents a strategic partner for Cardiol and find this development to be significant.

We are bullish on the growth prospects associated with the amendment as it will allow Cardiol to scale the commercial production of its high concentration pharmaceutical cannabidiol (CBD) formulations and their sale to other license holders. This represents an important development for the business and we will monitor how the management team is able to ramp up production.

Cardiol’s ultra-pure CBD formulation is pharmaceutically produced specifically for medical purposes. The formulation does not contain any THC and this is an important aspect of the story. Many consumers are looking for non-THC products and we believe that Cardiol is positioned to capitalize on this vertical of the market.

The products offered by Cardiol are produced using controlled processes in a cGMP, Health Canada approved, FDA registered and inspected pharmaceutical facility. From a safety standpoint, it cannot get much better than this and we find this to be an attractive aspect of the story.

When compared to the rest of the cannabis sector, Cardiol has held up better than most of the sector and this is a trend that caught our attention. The company is led by a management that is focused on executing and creating value for shareholders. We have met with the team on numerous occasions and are impressed with the way they have driven the story forward. Although the company has performed better than most over the last six-months, we believe that the opportunity is flying under the radar and this is an opportunity to be watching.

A Cannabis Retailer that is Positioned for Growth

When it comes to the cannabis retail opportunity, we recently started to follow Meta Growth (META.V) and will put this company on our watch list. In late January, the company announced quarterly financial results and recorded more than $15 million of revenue in the quarter. We believe that Meta is an opportunity that is flying under the radar and are favorable on the growth prospects that are associated with its portfolio of 33 corporately owned and operated stores.

Meta recently strengthened its capital position and completed a $10 million private placement. The proceeds from the financing will be used to help advance the operation and we are bullish on the growth prospects associated with the strategy. Over the next year, we expect Meta to record substantial revenue growth as it increases the number of dispensaries that are open.  We believe that the management team has done a great job at advancing the opportunity and expect the business to be a beneficiary of the legal cannabis movement in Canada.

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