How Chemistree Technology Established Beachhead On U.S. East Coast

Started with the vision to create a broad-based company with full spectrum participation in the cannabis sector, Chemistree Technology Inc. (CA: CHM – $0.40 & US: CHMJF – $0.27 & GER: CM1 – €0.26) has rapidly advanced through its early growth phase with an ambitious investment plan. Although the Company is headquartered in Vancouver, Canada, the appeal of the much larger United States market has placed emphasis on targeting acquisitions the land of Uncle Sam. This week, Chemistree announced that its partner Applied Cannabis Sciences (ACS) of New Jersey took a big step to become a vertically integrated cannabis business in the foreseeable future.

The core competency of Chemistree’s management has already been demonstrated through the initial investment to acquire the assets of cannabis producer Sugarleaf Farms, located in Washington State. Amongst the assets were the global brand and marketing rights to the Sugarleaf brand. The deal was completed at a relatively low price and shortly thereafter the team at Chemistree was able to turn operations around and begin profitable operations.

A subsequent investment to acquire a 9.55 acre parcel of land in California, currently the largest market in the world for cannabis, has added another layer of diversification. The Company’s design team is currently in the process of finalizing plans for two 64,000 square foot greenhouses and a 40,000 square foot manufacturing and distribution facility. Thereafter, a collaboration agreement with a service provider in the cannabis industry built further inroads to the Californian market.

Chemistree Technology New Jersey cannabis market

This rapid and unprecedented expansion of the medical marijuana program in New Jersey is geared toward increasing the patient count to over 200,000 people.

Investment in New Jersey Cannabis Company Offers Expansion Opportunities

In April, 2019 Chemistree formed a partnership with New Jersey based Applied Cannabis Sciences. ACS has been established by a team of seasoned professionals from the legal medicinal and adult use marijuana industry whose collective experience exceeds 50 years and includes over 20 cultivation, processing, and manufacturing licenses across four states (Washington, Oregon, California, and Colorado) within the U.S.

Various licenses are required to operate businesses involved in the production and distribution of cannabis products. This week Chemistree reported that ACS is preparing to secure cultivation, manufacturing and dispensary endorsements in New Jersey. The applications process commences on July 1, 2019 and may take up to six months.

Emerging New Jersey Cannabis Market is a Driver for Growth

Chemistree is providing assistance to ACS throughout the application process. Success achieved by its partner will in turn establish a beachhead for Chemistree on the eastern seaboard. Chemistree is purchasing ten percent ownership of ACS with an option to increase ownership if ACS is successful to gain licensure.

At present, there are only six licensed cannabis operators in New Jersey, serving a state with more than 9 million residents. However, the medical marijuana expansion bill was recently passed in the state legislature. This will further increase the number of licenses granted and encourage eligible companies to submit applications. With its local knowledge and contacts in New Jersey, ACS is considered one of the candidates most likely to be awarded endorsements in this latest round of expansion.

Similar to the growth of cannabis use in California, New Jersey is emerging as another large cannabis market. Just accounting for medicinal marijuana consumption, it is expected that over 200,000 people will count on cannabis for their treatment. In 2020, a voter referendum to legalize adult recreational cannabis consumption is planned. If successful, it would deliver exponential growth for the overall market.

Conclusion

Chemistree was launched on the basis of a focused strategy, crafted by a respected management team with many years of experience in the cannabis sector and the capital markets. The Company is already effectively executing its business plan with investments in cannabis production and the formation of partnerships with other players in the sector. Securing a foothold in several of the largest cannabis markets in the United States will enable the Company to achieve faster sales growth. Meanwhile the diversification of its interests contributes to a more stable platform and creates new growth opportunities.

Suffice to state that Chemistree has accomplished a great deal in a short amount of time. The shrewd acquisitions were completed at a reasonable cost base. Opting to participate in partnerships has built synergies in new jurisdictions and lowered the risks level. Moving ahead with cannabis production will enable Chemistree to secure significant cash flow from operations. The enhanced financial strength thereafter will support R&D investments for the creation of new products. Leverage to research will also build access to new medicinal applications for cannabis.

Considered under the context of the integrated business plan therefore, the plan to establish a partnership with ACS in New Jersey may advance all of the objectives for Chemistree. Success in the application process will bestow access to cultivate and distribute medicinal cannabis to a large and growing market. It will also secure a beachhead for Chemistree in a state with a stated objective to become a leader in R&D activity for the sector.

Many of the established companies in the cannabis sector have risen to premium market caps. As a relatively new story in this sector, Chemistree currently trades at a more reasonable share price. However, with so many avenues for rapid growth in the pipeline, Chemistree is among the most attractive small cap stocks in the cannabis sector. SmallCaps Recommendation: BUY.

For important disclosures, please read our disclaimer.Latest Company Report (pdf)

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