Cannabis Index

Goldman’s Cannabis Index consists of the following three stocks:

GW Pharmaceuticals (NASDAQ: GWPH)

 Business Description: GW Pharmaceuticals plc is a biopharmaceutical company focused on developing and commercializing therapeutics from its cannabinoid product platform in a range of disease areas. The Company’s lead cannabinoid product candidate is Epidiolex, which is a liquid formulation of pure plant-derived cannabidiol (CBD). The Company offers Sativex for the treatment of spasticity from multiple sclerosis. The company can be seen as a takeover company for other big pharma companies with failing cannabinoid drug.

Revenue Breakdown: The Company operates through three segments: Commercial, Sativex Research and Development, and Pipeline Research and Development. The Commercial segment distributes and sells the Company’s commercial products. The Sativex Research and Development segment seeks to maximize the potential of Sativex through the development of new indications.  The Pipeline Research and Development segment seeks to develop cannabinoid medications other than Sativex across a range of therapeutic areas using its cannabinoid technology platform. If Epdiolex can break the $1 billion mark, the drug can be a blockbuster, putting it in rare territory. In 2015 only 11 new drugs entered blockbuster status. In 2016 that number fell to seven. GW Pharma is in a league of its own when it comes to cannabinoil treatment for epilepsy, no other company has a drug in the pipelines like this

Products and Services: GW’s Epidiolex is currently in Phase 3 trials and should expect an FDA ruling by the end of 2017. Epidiolex has huge revenue potentials in being one of the first medical cannabis treatments for epilepsy, among other potential applications. Epidiolex has performed well under rigorous testing. For example, at the American Society of Epilepsy conference in December, GW revealed that Epidiolex cannabidiol reduced seizure frequency by more than 50% in 44.2% of recipients. The drug is currently in Phase 3 trials for both tuberous sclerosis complex, a genetic brain cancer that effects 40,000 people in the U.S. and up to 2 million globally, and for infantile spasms. Assuming an FDA approval for Epidiolex, analysts are projecting annual sales between $800 million and $3 billion.

GWP42006 (CBDV) is at Phase 2 for both adult partial onset epilepsy and autism. Clinical trials are proceeding for its use in autism spectrum disorder which is said to affect in some way one out of 68 children. Phase 2 trials are expected to begin in Q3 2017. Further data is expected to be announced by the company in mid-2017 for the epilepsy study. GWP 42003 is at Phase 1 for Neonatal Hypoxic Ischemic Encephalopathy (NHIE).  Sativex is a combination of THC and CBD with other specific minor cannabinoids. It is already approved for prescription in 30 countries, but excluding the USA. It has approvals pending in a further 12 countries. Sativex is used to treat spasticity caused by multiple sclerosis. Its sales have so far been somewhat disappointing, but did rise from £4.2 million to £5.2 million in the past year.

GW Pharma is the most established and well-known company by market cap, within the index and sets itself apart by being the first pharmaceutical company to create cannabinoid oil to combat many health issues. GW Pharma has successfully been growing their revenues at an average annual rate of 12% this is by far the highest compound annual growth rate of any large and established company in the medicinal cannabis industry and makes it an acquisition target for larger companies to boost their inorganic growth. Consistently beating expectations for the past four quarters, GW Pharma has proven that they are able to sustainably and explosively grow and compete.

Aphria Inc. (OTC: APHQF)

Business Description: Aphria Inc., is a Canadian-based company, which is involved in producing and selling medical cannabis. The company’s retail sales are mainly sold through the company’s online store, as well as telephone orders. Its wholesale shipments are sold to other Medical Purposes Regulations Licensed Producers. The company is also involved in the research and development, and commercial production of cannabis oil.  Aphria is the first publicly traded LP to report positive earnings in consecutive quarters.

Facility Expansion:  Aphria just finished step two in a four-step expansion project to build a 1,000,000-square-foot cannabis cultivation facility producing 70,000 kilograms of dried cannabis every year. In October 2016, Aphria announced a contract with MassRoots is to build brand awareness amongst its Canadian user base in return for per-patient referral fees. MassRoots is positioned as ‘the social platform for marijuana’ and has over 900,000 users.

International Expansion: In October 2016, the Company announced an agreement with Copperstate Farms LLC under which Aphria will share its greenhouse growing knowledge in return for an ownership stake in Copperstate, a licensed producer based in Arizona. It owns a 10% membership in the parent company, and a 5% membership interest in the operating subsidiary.  Up-listing to the TSX Index will make Aphria a component in most Canadian index funds, such as iShares MSCI Canada.

While Aphria Inc. operates 100% in the Canadian medicinal cannabis market, its two largest competitors are Aurora Cannabis Inc. (ACBFF) and CanniMed Therapeutics Inc. (CMMDF). Both are listed under Health Canada’s Access to Cannabis for Medical Purposes Regulations. Aphria has 340,000 square feet of expansion space, which is tied for the largest expansion space with Tweed Inc. This is a necessity in this industry due to the lack of supply for the growing demand of medicinal cannabis in Canada.

Strong EBITDA: Aphria’s revenue grew 13% in the past quarter. This is the company’s second consecutive quarter with EBITDA greater than $1 million. The EBITDA growth reflects the company’s continued focus on low cost producer status and industry leading patient care. The low cost for production can have some major profit margins for the near and far future of the company’s growth.

Revenue Growth: Aphria Inc. has experienced vary rapid revenue growth in their two years of generating revenue, within the first year they increased revenues by 1,200% year to year and are on track to achieve this significant growth again in 2017. Average annual revenue has increased by 62%.

EPS Growth: Earnings per share for Aphria have been historically negative until the second quarter of 2016 when it was reported that they had earnings of $0. For the following four quarters, Aphria posted positive earnings. For the past 8 quarters, earnings per share have increased 42% on average, fluctuating between -$.05 and $.02. Expected earnings per share over the next four quarters is 4 cents which is 4 times as much as it has grown in the most recent seven quarters.

Canopy Growth Corporation (OTC: TWMJF)

Business Description: Canopy Growth Corporation, formerly Tweed Marijuana Inc., is a diversified cannabis company. The Company is engaged in the business of producing and selling legal marijuana in the Canadian medical market. It is also focusing on producing and selling marijuana in the recreational market in Canada. Its core brands are Tweed and Bedrocan. Tweed is a licensed producer of medical marijuana. Tweed’s commercial license covers approximately 168,000 square feet of its Smiths Falls facility and allows Tweed to produce and sell approximately 3,540 kilograms of medical marijuana per year.

Production: Canopy operates four production facilities located in Ontario using a combination of indoor and greenhouse growing methods. The company is currently licensed for annual production of 14,500 kg of dried cannabis and 6,700 kg of cannabis oil, representing over 7M milliliters of finished cannabis oil. Ongoing expansions efforts could add another 16,000 kg of annual production capacity. Tweed Farms is the largest marijuana-producing greenhouse in the world, certainly legally that we’ve ever come across, with over 350,000 square feet of licensed cannabis production space.

Mettrum Acquisition Expands Market Position: In January 2017, the Company acquired Mettrum Health for $335M in stock. Mettrum is a licensed producer of medical cannabis and industrial hemp-based products. The Company currently produces approximately 16 strains from a genetic library of over 60 strains, which it refers to as the Mettrum SpectrumTM. It received its first license in November 2013, and began selling in January 2014. Prior to its acquisition by Canopy, Mettrum was working towards an annual capacity target of 25,000 kg by March 2018.

Revenue Growth: Historical revenue growth for Canopy has been 80% from quarter to quarter since its start. In 2016, revenue has increased 270% from $6.18 million to $22.91 million.  Canopy has the fastest growth in its industry. The revenue has grown 4,200% since June of 2014.  Just last 3 quarters, Canopy’s revenue has grown over 425%. It is estimated that revenuewould grow an average of 34% quarter to quarter for the next four quarters. The estimated revenue for the next four quarters is $68.7 million compared to the most recent four quarters revenue of $22.9 million. The revenue will increase at a rate of 200% annually and the earnings at a rate of 142% quarterly.

 

 

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