vertically integrated CBD life sciences company and a multi-state operator of medical health & wellness clinics
With a patient count of 165,000
Message: MEDIA: Empower Clinics Is Laser Focused On The U.S. CBD Opportunity
By Anthony Varrell
The last few months have been difficult for the cannabis sector and the recent decline has caught the attention of new capital. Over the last few months, we attended several conferences and met with new venture and private equity funds that are taking a hard look at the cannabis sector following the recent pullback.
Following our meeting with these funds, we became increasingly excited about how the sector will perform during 2020. During the final quarter of the year, we expect to see more tax loss selling and this is a trend to be monitoring. On average, we have seen a drastic improvement from a fundamental standpoint when analyzing companies that are focused on the cannabis sector. This is a trend that we expect to continue on a going forward basis and believe the recent weakness has created opportunity.
The US represents one of the most exciting cannabis markets and we have noticed a significant increase in the amount of interest in this burgeoning market. Over the next year, we expect to see further interest in the US market and expect deregulation to be a catalyst for the businesses that are levered to this opportunity.
During the last month, we have been highly focused on the US cannabis market and have been working to identify companies with specific criteria. When analyzing these cannabis businesses, we are looking for companies that are: 1) led by a management team that is focused on execution and creating value for shareholders; 2) have visible growth prospects and substantial potential catalysts for growth; 3) are attractively valued or misunderstood by the market; and 4) that are levered to states with burgeoning cannabis markets.
One company that we believe that meets this criteria is Empower Clinics (CBDT.CN) (EPWCF) and today, we have issued on the US cannabis business. The company has substantial growth prospects, a diverse business model, and represents a multi-faceted growth opportunity. Over the next year, Empower is expected to report strong revenue growth as the management team continues to execute on its expansion and advance the franchise model aspect of the business.
Growing Through Strategic Partnerships
One of the reasons we are excited about Empower is due the focus on securing strategic partners to support growth. From a resource’s standpoint, the company has been able to expand into markets that are both efficient and effective. Going forward, we expect to see Empower benefit from the relationships that it has formed and believe that the market underappreciates this aspect of the story.
A few weeks ago, Empower announced a major milestone and entered into a letter of intent to form a joint venture with Heritage Cannabis Holdings (CANN.CN) for the extraction of hemp for CBD oil production, and formulated CBD products. The joint venture will be owned 50/50 by each company and we are bullish on the growth prospects associated with this initiative.
Heritage, via its wholly owned subsidiary Purefarma Solutions, will install extraction units and related downstream extraction equipment inside Empower’s existing 5,000 sq. ft. licensed hemp processing facility. Purefarma will also train and supervise the staff on the proprietary methods of extraction and oil production that it produces in Canada.
We are favorable on the expertise that each company brings to the joint venture and expect this to play a key role in the success of the operation. Going forward, the joint venture plans to secure high quality hemp supply from local growers as construction is completed on the facility. Once operational, the joint venture will start producing proprietary branded products for Empower’s corporately owned physician staffed health clinics in Washington State, Oregon, Nevada, and Arizona.
Highly Focused on the US CBD Market
Another attractive aspect of the Empower story is related to the hemp-derived CBD extraction facility in Oregon. The company is in the process of constructing a facility equipped with a state-of-the-art extraction system (expected to produce approx. 6,000 kg of extracted product per year) and this should prove to be a major revenue driver in 2020.
Empower has commenced the process to access the more than 1,300 licensed hemp farmers in Oregon and we are favorable on this. These cultivators are known to produce some of the highest quality hemp bio-mass in the US and we find this be significant. Quality of products has become very important following the issues over at Juul and we believe that the joint venture has done a great job by focusing of safety and consistency.
From a distribution standpoint, the footprint that Empower has throughout the US will play a key role in the success of the CBD business. Through Sun Valley Health, a subsidiary of Empower, the company has access to more than 165,000 patients. Through company owned and franchised cannabis clinics, Empower will be able to market to large potential customer base that is clearly open to cannabis.
Empower recently launched an e-commerce platform to sell company branded hemp-derived CBD based products as well as premium health and wellness supplements. Over the next year, we expect to see the company’s CBD product line gain traction within its clinic network and will monitor this aspect of the story.
An Opportunity that is Flying Under the Radar
Over the next year, we expect to see Empower benefit from having a multi-faceted growth model and additional revenue streams. Going forward, we are most excited about the growth prospects associated with the CBD market and the clinic franchise opportunity. Empower has visible growth prospects and we expect 2020 to be a banner year for the business.
One of the most significant developments of 2019 for Empower was the change in the management team. We believe that the transition has been smooth and are favorable on the verticals that the new leadership team has the business focused on. We believe that the new management team better understands how to utilize its assets to capitalize on the cannabis industry and find this to be significant.
During the last year, Empower has transitioned from being only focused on cannabis clinics to being a multi-faceted growth story with leverage to the CBD market. We believe that the CBD opportunity represents low hanging fruit for the company and this is primarily due to the relationships it has with consumers through the clinics.
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