This medical, wellness, and recreational cannabis products firm has lots of growth projects—and a sizable investment in the company by a global tobacco giant is a big plus.
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AUXLY CANNABIS GROUP, $0.893, symbol XLY on the Toronto Venture Exchange (Shares outstanding: 606.7 million; Market cap: $515.6 million; TSI Cannabis Quality Rating (CQR): ; www.auxly.com), develops, produces, and sells cannabis products to the medical, wellness, and recreational markets. The company was founded in 2017 and is based in Vancouver, B.C.
Auxly operates under a number of subsidiaries:
The Kolab Project, with production facilities in Carleton Place, Ontario, grows and sells a selection of premium indica, sativa and hybrid dried cannabis flower for the medical market. Kolab recently opened a store in Lloydminster, Saskatchewan, and the company can now sell across the province in stores and online.
Robinson’s Cannabis, with production facilities in Annapolis Valley, Nova Scotia, is a producer of a premium line of cannabis products. Auxly acquired Robinson’s in April 2018.
Dosecann, based in Prince Edward Island, is a developer and manufacturer of cannabis-infused products for the wellness market, including chocolates, sprays, creams, lozenges, and oils. Dosecann has 42,000 square feet of space dedicated to extraction, quality testing, product formulation and manufacturing. Auxly acquired Dosecann in April 2018.
KGK Science, based in London, Ontario, is a research organization that specializes in human clinical trials for the nutraceutical, dietary supplement, and functional food industry. For nearly two decades, KGK Science has run clinical trials for clients, such as Kraft Foods, Sanofi, Nature’s Bounty, and NuSkin, and recently expanded its research capabilities to include cannabinoid products. Auxly acquired KGK Science in August 2018.
Inverell S.A., a hemp production company in Uruguay, has 150 hectares under production and is constructing a cannabis extraction unit. Auxly acquired Inverell in November 2018. In the latest quarter, Inverell harvested 18 tonnes of hemp biomass to be converted into CBD. CBD, short for cannabidiol, is a non-psychoactive compound extracted from both marijuana and hemp.
In July 2019, Auxly signed a deal with U.K. tobacco giant Imperial Brands plc in which Auxly will receive a $123-million investment. The agreement will give Imperial a 19.9% stake through a debenture convertible into Auxly shares, at a price of $0.81 per share.
Imperial Brands, whose tobacco brands include Winston and Davidoff cigarettes, is increasingly focused on e-cigarettes and vaporizers. In addition to capital, Auxly will have access to Imperial’s Nerudia vapour innovation business and will become Imperial’s exclusive global partner for future cannabis products.
Meanwhile, to expand production capacity, Auxly is constructing Sunens Farms, a joint venture, fully automated greenhouse for cannabis cultivation, in Leamington, Ontario. The anticipated cost is $160.0 million. The development is projected to reach production capacity of around 170,000 kilograms per year.
In the three months ended June 30, 2019, Auxly reported revenue of $2.7 million, of which $444,000 was research revenue from the acquisition of KGK Science. The company had no revenues a year earlier, and lost $14.0 million, or $0.02 a share, in the latest quarter, compared to a loss of $11.9 million, or $0.03.
Auxly has a cash balance of $119.5 million and almost no long-term debt.
The legalization of cannabis edibles and other new product segments, including cannabis oil and other concentrates, is set for October 17, 2019. With the extraction and production capabilities of Dosecann, the research and testing facilities of KGK Science, and the capital investment from Imperial Brands, Auxly is now positioned to expand in new cannabis markets with a range of high-profit-margin, value-added products, including vapes, capsules, oils, sprays, and cannabis-infused chocolate.
The company’s diversified operations span the entire cannabis supply chain, from the cultivation and extraction phase to research and development to distribution and sale. With the addition of Inverell, Auxly is also establishing itself in the global market for value-added cannabinoid-based products.
Auxly Cannabis Group has a 2.5-Leaf Cannabis Quality Rating (CQR). The stock is a speculative buy for aggressive investors who want exposure to the marijuana industry.
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