A specialized marijuana growing system offers an alternative revenue stream to this company’s cannabis and cannabis-based products. Meanwhile, it continues to increase production and sign new joint-venture agreements.
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DELTA 9 CANNABIS INC., $0.86, symbol NINE on the Toronto exchange (Shares outstanding: 87.7 million; Market cap: $75.6 million; TSI Cannabis Quality Rating (CQR): ; www.delta9.ca), produces and sells cannabis and cannabis-based products for the medical and recreational cannabis markets. The company also manufactures and sells modular grow-op pods. Delta 9’s growing, manufacturing, and retail operations are based in Winnipeg, Manitoba.
Delta 9 recently moved from the Toronto Venture Exchange to the Toronto exchange. It also changed its stock symbol to DN from NINE.
Delta 9 was founded in 2012 and obtained a license to distribute medical cannabis in 2014. The company’s shares began trading on the Toronto Venture exchange in November 2017 at $0.65 each.
The cannabis producer is one of only four suppliers to be awarded licenses to operate retail marijuana stores in Manitoba. The stores offer cannabis flower, cannabis oils, and cannabis accessories to adult recreational consumers.
Under the Delta 9 Cannabis Store brand, the company opened its first location in Winnipeg in October 2018, in partnership with Canopy Growth (symbol WEED on Toronto). It now has two locations in Winnipeg and one cannabis retail store in Brandon, with plans to open additional stores, including a store in Thompson, Manitoba. Delta 9 also operates a medical clinic, which markets the “Delta 9” brand to patients and provides physician consultation services to patients seeking a medical recommendation to use medical cannabis.
As an alternative revenue stream, Delta 9 sells and services its exclusive Grow Pod system. Grow pods are a stackable hydroponic system that uses repurposed shipping containers. The self-contained units allow for complete climate control and vertical space utilization. The company believes that a major benefit of these self-contained units is that they lower the risk of total crop failure by preventing the spread of pests and disease. As well, production can be scaled up gradually to match capital resources and product demand.
Delta 9 now operates its wholly owned subsidiary, Delta 9 Bio-Tech Inc., as a licensed producer of medical marijuana; it also operates the 80,000-square-foot Delta production facility in Winnipeg.
The company plans to keep filling out its current production facility with Grow Pods. So far, the company has installed 297 Grow Pods within the Delta facility, 95 of which are currently pending Health Canada approval to be placed into production.
Delta 9 is continuing with its planned phase II expansion of the Delta facility, which is anticipated to increase the company’s overall production capacity to approximately 16,500 kilograms per year of dried cannabis flower, from an estimated 5,350 kilograms per year of dried cannabis flower currently.
In April 2018, the company entered into a preferred supplier agreement with Pharmasave Drugs, Canada’s second-largest independent drug store chain (with over 650 outlets). This deal should eventually open up a large market for Delta 9’s medical cannabis.
In February 2019, the Saskatchewan Liquor and Gaming Authority authorized the company to supply cannabis directly to the province’s retail and wholesale markets.
In partnership with Fort Garry Brewing, Delta 9 is developing cannabis-infused beverages for when the federal government permits those “edibles” this fall.
The company’s revenue in 2017 was $944,114, up 89.5% from $498,334 in 2016. It lost $7.9 million, or $0.14 a share, up sharply from its loss of $1.5 million, or $0.04. In 2018, it lost $8.6 million, or $0.10 a share, on revenue of $7.6 million.
In the three months ended June 30, 2019, revenue jumped, to $8.9 million from $715,746 a year earlier. Most of the increase was from shipments of recreational cannabis. It lost $1.3 million, or $0.01 a share, in the latest quarter compared to a loss of $2.2 million, or $0.03, a year earlier.
The company ended the quarter with $3.0 million in cash.
Delta 9 has a secure position in the Manitoba retail market, in partnership with Canopy Growth. However, beyond that, its growth prospects appear limited. Its Grow Pods have conceptual appeal, but it’s far from certain they can supplant the greenhouses that dominate the industry.
Delta 9 has a 2.5-Leaf Cannabis Quality Rating (CQR). We don’t recommend shares of Delta 9.
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