Medical Cannabis market update

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Medical Cannabis market update

According to a report by Oristep Consulting, the global medical cannabis market in 2016 was valued at $12.67 billion and is projected to reach $33.41 billion by 2022 at a CAGR of 17.53% during the forecast period. Various scientific studies of the chemical called cannabinoid have already resulted in two FDA-approved medications in a pill form. The two main cannabinoids from the cannabis plant are THC and CBD, which are used for medical purposes as treatments for various conditions such as increasing appetite, reduce nausea, decreasing pain, inflammation, and muscle control problems. The report also indicates that North America leads the market holding nearly half of the market share in 2016. WeedMD Inc. (OTC: WDDMF), Organigram Holdings Inc. (OTC: OGRMF), Supreme Cannabis Company, Inc. (OTC: SPRWF), THC BioMed Intl Ltd. (OTC: THCBF), iAnthus Capital Holdings, Inc. (OTC: ITHUF)

Earlier this year California has started legal sales of recreational cannabis. While sales are growing, there are concerns that supply will fall short of demand. According to a report by the Chicago Tribune, Charles Boldwyn, chief compliance officer of ShowGrow in Santa Ana, explained, "We’re looking at … hundreds of licensed cultivators and manufacturers coming out of an environment where we literally had thousands of people who were cultivating and manufacturing… So the red tape is a bit of a bottleneck in the supply chain." Despite the concerns, the market in California is expected to witness strong growth. The state Department of Finance expects Californians to purchase about 1 million pounds of cannabis over the first full  year of legalization, between July 1, 2018, and June 30, 2019.

WeedMD Inc. (OTC: WDDMF) is also listed on the TSX Venture Exchange under the ticker symbol (TSX-V: WMD). Last week the company announced breaking news together with Hiku Brands Company Ltd. (CSE: HIKU) that, "they have entered into a definitive agreement (the "Arrangement Agreement") to merge both companies, creating an industry leader (the "Transaction"). The Transaction combines two highly-complementary businesses and creates a unique and market differentiating vertically integrated company. Upon completion of the Transaction, existing Hiku and WeedMD shareholders will own approximately 51.75% and 48.25% of the combined company, respectively, on a fully-diluted basis. Upon closing of the Transaction, it is anticipated that the common shares of the pro forma resulting entity will be listed on the TSX Venture Exchange ("TSX-V"), subject to regulatory approvals. Joint management will be hosting a conference call on Friday, April 20, 2018 beginning at 10:00AM EST. See end of the press release for details.

The combination of Hiku and WeedMD creates a premium cannabis brand house with fully vertically integrated operations, an expanding network of retail stores, a growing medical business and four scalable cannabis production facilities, two of which are currently licensed. As a result of the Transaction, Hiku will operate a diverse cannabis supply chain that includes a large portfolio of unique genetics for its growing brand portfolio and emerging nationwide retail sales channels. The entity combines Hiku’s strength in retail and branding – ensuring a high quality, consistent and educational consumer experience in the adult-use cannabis market – with WeedMD’s existing service and quality in the medical market.

"Our vision at Hiku has always been that cannabis is a consumer product – in which brands, retail and customer experience will ultimately win," said Alan Gertner, Chief Executive Officer of Hiku. "The combination of Hiku and WeedMD creates a cannabis company capable of fulfilling the vision of delivering the best in class experiences from in-store to product, from medical to adult-use, but also capturing full retail and wholesale margins. Our combined offerings create a company that is insulated from potential wholesale margin compression and is ready to scale its offering globally."

Bruce Dawson-Scully, Chief Executive Officer of WeedMD, said, "WeedMD was founded on the principles of product and patients first. Our goal since inception has been on procuring world class genetics, cultivating premium medical cannabis, and delivering it with best-in-class service to our valued patient base. We look forward to the next step in WeedMD’s journey by merging with Hiku, a complimentary group that furthers our mission by bringing our focus and passion into a more robust platform. Having access to iconic brands and a growing retail footprint to execute on our growth plan together with our cultivation and existing medical expertise is intended to ensure significant benefits to our shareholders and expected to present significant upside as Canada marches towards legalization."

Hiku has built a portfolio of iconic, engaging cannabis brands, immersive retail experiences and handcrafted cannabis production. Hiku is recognized as an early leader in Canada’s emerging adult-use market, with the Tokyo Smoke retail banner awarded Brand of the Year at the 2017 Lift Cannabis Awards. In February 2018, Tokyo Smoke, Hiku’s wholly owned subsidiary, was awarded one of only four conditional master licenses for cannabis retail in Manitoba, an important milestone in Hiku’s Canada-wide cannabis retail expansion plans.

With a retail footprint led by Tokyo Smoke, cannabis production through DOJA’s ACMPR licensed facility, and Van der Pop’s female-focused educational platforms, Hiku houses an industry-leading portfolio for cannabis in Canada’s adult-use market. WeedMD operates a 26,000 square foot indoor facility with over 1,500 kg of current production capacity and is fully funded for a large-scale production expansion of a 14-acre greenhouse on a 98-acre property representing an increase to more than 50,000 kg of capacity. The combined companies create a brand-focused retail business with the ability to provide product quality and selection on par with the retail experience itself.
Highlights of the Transaction:

  • Vertically Integrated Operations Secure Control Over Entire Cannabis Value Chain: The combined entity will leverage Hiku’s growing retail operations as sales channels for premium cannabis supply, allowing for the realization of superior wholesale and retail margins. The Transaction ensures Hiku’s control over both upstream and downstream components of the cannabis value chain
  • Highly Complementary Strengths: The Transaction combines Hiku’s portfolio of iconic brands, visionary marketing and experiential retail stores with WeedMD’s scalable cannabis production capabilities, deep genetics library, and innovative research and development initiatives
  • Visionary Leadership with Significant Experience: Experienced management team with leading capabilities in branding, marketing, retail and cannabis production
  • Dynamic Retail Growth Across Canada: The combined company plans to aggressively pursue the expansion of its existing retail store network, including the addition of legal retail cannabis stores and online cannabis sales channels where permitted in British Columbia, Alberta, Saskatchewan and Manitoba where Tokyo Smoke was conditionally awarded one of four master licenses for retail cannabis sales
  • Superior and Diversified Cannabis Cultivation: This combination brings together four indoor and greenhouse growing facilities in Ontario and British Columbia, with the option for future expansion on more than 100 acres of property at the existing sites. Current planned capacity will exceed 56,000 kg by mid-2019
  • Extensive and Unique Genetics: Deep library of unique cannabis genetics is the basis for premium cannabis products in both the adult-use and medical markets
  • Enhanced Capital Markets Profile: Increased scale of the combined company will enhance its capital markets profile and trading liquidity, in addition, the combined entity will be listed on TSX-V, subject to regulatory approvals
  • Expanded Platform for Future Growth: Together, the combined company will have substantial and burgeoning infrastructure to support the acceleration of future product development and expansion
  • Synergies from being Vertically Integrated: Having branded stores, cannabis dispensing stores, and owned production facilities ensures a vertically integrated company that can best drive greater margins in the wholesale and retail markets of the new cannabis sector"

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