This Undiscovered Cannabis Company Rivals Canopy Growth, Aphria and Tilray; Showcases 6-Months of Profitability in the Cannabis Sector

MF Williams
November 30, 2020
Stocks mentioned in this report: Stocks mentioned in this report: Next Green Wave Holdings Inc. (OTCQX: NXGWF / CSE: NGW ), Canopy Growth Corporation (NASDAQ: CGC / TSX: WEED), Tilray, Inc. (NASDAQ: TLRY), Aphria Inc. (NASDAQ: APHA), Cronos Group Inc. (NASDAQ: CRON / TSX: CRON)

The cannabis stock bubble burst over a year ago and while investors are now approaching the sector with extra caution, they are still looking for opportunities in the space. As I have stressed in my previous articles, the cannabis sector is still maturing. Multiple remaining companies are just beginning to find their niche, refining their business models and staking out their collective territory.

Many investors made serious coin over the past number of years on pot stocks, and while the bubble may have burst, profits can still be had in what can be considered a fast, but now maturing market. It’s now more important than ever to pick your bet for profits.

Today, I will introduce you to a boutique cannabis company a friend recently sent my way that is blowing expectations out of the water. This little-known company is still in the beginning stages of executing an expansion plan that early investors could profit from for some time.

Stay with me as I examine today’s cannabis market and how this publicly traded company that I’m about to introduce you to is quietly staking its claim in the multi-billion-dollar US cannabis space.

A Growing Climate of Acceptance

By all accounts, the War on Drugs that started back in 1971 under the Nixon administration was a dismal failure. Public opinion is now swinging in the opposite direction though — away from prohibition and towards legalization. A recent Gallup poll (see chart below) found that a record-high 68% of respondents want marijuana legalized.[1]

Voters across the country now see marijuana for what it is — a plant that has many benefits that far outweigh any harmful side effects. Legalization of marijuana whether for medical only applications or full recreational use, as well as decriminalization, are sweeping across the country with only a few states left to follow.

At the national level, speculation is that there will be some sort of much needed federal reform of antiquated marijuana laws. Newly elected President-elect Biden has committed to decriminalizing cannabis and expunging prior convictions.[2]

California: The World’s Largest Cannabis Market

Of all the states in the US, California is by far the 800-pound gorilla in the cannabis market.

California has always been known for its superior marijuana. Back in the 60s, a growing counterculture movement decided to forgo the city life and instead opted for the remote forests of Northern California in what is now known as “The Emerald Triangle.”

The climate and soil in this region are perfect for growing marijuana. These newly minted ‘country farmers’ quickly turned to the cultivation of what we call today ‘green bud,’ the fresh THC-rich flowers of the cannabis plant.

Prior to the famed Emerald Triangle, marijuana primarily came from Mexico. The marijuana flowers were dried and compressed into bales (much like hay bales) resulting in a product that was not only brown but that also had lost much of the aromas and flavors that fresh marijuana flowers inherently have.

Needless to say, the marijuana cultivation of the Emerald Triangle quickly grew in fame. Even to this day the region is known worldwide for its superior quality marijuana production.

Jump ahead 40 years, and with relatively recent legalization, the California marijuana market size has exploded beyond expectations.

Last year, the LA Times reported that California has the largest cannabis market in the world. With a $2.7 billion gross domestic product, California has the world’s largest legal cannabis market, far exceeding the GDP of many countries![3]

“California now has the biggest legal marijuana market in the world.”

 

By 2022, the California cannabis market size is estimated to grow to $7.7 BILLION according to Statista.[4] Some think that number might be conservative.

Let that number sink in for a minute… $7.7 Billion.

Now consider a CAGR of over 30%![5]

Simply put, the “Green Wave” is just getting started and there is still a fortune to be made by well-positioned investors in today’s cannabis market!

As I always like to say, “There is always a bull market somewhere; you just have to know where to look.” And from my research, when it comes to cannabis, California is definitely the place to start looking for opportunity.

The Phone Call That Made My Day

A buddy of mine, a well-known venture capitalist, called up a number of days ago almost out of breath.

“What’s going on? Everything ok?,” I asked.

“Yeah, sorry. I got this amazing lead on a boutique cannabis company and I ran back to the office to double check the numbers.”

“What? Are you kidding? You are that excited over a cannabis company?,” I replied.

“Listen, what I’m about to tell you is going to blow your mind. Hear me out. Do you have 10 minutes?”

And so it went. At the end of that call I was scrambling to do my research and fact-check what I was just told.

Sure enough, it looked like we had stumbled upon a true potential winner, and of all things, it was securely positioned as a bonified long trade in what I am calling… today’s redefined cannabis sector!

It All Started as a Family Affair

A little background… the story I was told was that one of the families that moved to the Emerald Triangle back in the 60s had been growing and selling marijuana commercially into the black market for years.

The son grew up watching and learning from his father who had become a local legend in the business. Through trial and error, the father had mastered the techniques of growing world-class marijuana on what was to be believed to be a commercial scale.

This was no small feat during a time when information on the subject was non-existent. Due to the illegal nature of the business, growers had to learn on their own how to grow the famed ‘green bud.’

Successful growers kept their family secrets, or ‘secret sauce,’ close to the chest.

“From the ground, the plants were taller than I was and all I remember is loving the smell… I’ve always loved the smell of cannabis.”

The son worked some 20 years under the tutelage of his father, picking up the skills necessary to make a successful cannabis business. He also managed to get a law degree during the process while continuing to learn the art of growing world-class “green buds” to support demand.

The Family Business Goes Legal

Way back in 1996, California voters passed legislation and approved the sale of medical marijuana.

Overnight the game had changed in the marijuana business for California. Growers could now legally sell their products through state approved dispensaries.

The family business was now emerging out of the shadows and working to sell into the legal medical marijuana markets.

For the next 20+ years, the son continued cutting his chops in the business working on large cultivation projects; owning and operating several dispensaries; being the co-founder of Loud Seeds, a multiple High Times Cannabis Cup winning breeding and cultivation company; working in cannabis cultivation, breeding, and marketing; and establishing multiple brands in both the US and Europe.

In 2016, the gloves came off and recreational marijuana sales were legalized in California. The game was on and a fortune was waiting to be made.

A Star Is Born

Mike Jennings, CEO Next Green Wave Inc.

It was a long, winding road, but in the end the journey was worth every step.

Mike Jennings, the son of that clandestine farmer in the Emerald Triangle, could now carry on the legacy of his father’s business and expertise in the cultivation of premium world-class marijuana. Except now Mike could do it in a legal setting with the backing of his own public company to fund his dreams of growing and selling ultra-premium marijuana to connoisseurs.

That company Mike founded is Next Green Wave Holdings Inc. (OTCQX: NXGWF / CSE: NGW), and is the culmination of over 50 years of industry knowledge born out of hard work and a passion for growing ultra-high quality marijuana.

And that passion comes through from Mike as the CEO of the company.

I recently had the pleasure of talking with him about his history, how the company is currently advancing, and his future plans for Next Green Wave.

At the end of the conversation, I was struck by how smart he is and the depth of knowledge he has about commercial marijuana cultivation, processing and distribution. I was not talking to some hack that had grown a few plants in his backyard and was now calling himself a master cannabis grower.

This guy knows his stuff and his confidence and expertise shows when talking about the industry and the recipe for succeeding.

Premium Products for the Connoisseur

During our call, Mike explained to me his strategy for the company. He was going for the niche ultra-premium market. Quality vs. quantity. His target market is the marijuana connoisseur who is willing to pay the extra price for something special.

The retail price points for the company’s products come in just below the top of the market, undercutting his competitors just enough to make it a value proposition to the discerning consumer.

In his words, “We are selling a Ferrari for the price of a Mercedes.”

He further explained that the big cannabis companies such as Canopy Growth Corporation (NASDAQ: CGC / TSX: WEED), Tilray, Inc. (NASDAQ: TLRY / FRA: 2HQ), Aphria Inc. (NASDAQ: APHA / TSX: APHA), and Cronos Group Inc. (NASDAQ: CRON / TSX: CRON) all had business models of quantity versus quality that were doomed to fail from the start.

Next Green Wave’s product line is now moving in the direction of what is known in the industry as ‘sauce carts.’ Mike explained to me this was a category of marijuana that included the cannabis extract that contains high levels of terpenes (aromas and flavors of the marijuana flower) and are typically the most flavorful. His sauce cart includes hash, resins, dabs, vape cartridges, and gummies, to name a few.

I learned from him that the marijuana connoisseur is maturing and moving away from ‘green buds’ into the various extracts of the marijuana flower. He also mentioned that ‘gummies’ were one of his hottest products.

And this happens to be the fastest growing segment of the business with the highest price point and profit margin. Sauce carts generate about a 60% gross margin.

Mike also explained to me how the company is laser focused on the quality of the marijuana they produce. He showed me a picture of a flower that looked fine to me, but he said it did not meet his high-quality standards and was tossed.

His decades of grow experience and passion really shine in the company’s genetic library, which now boasts 100+ rare strains. He has gone to great lengths in procuring new genetic strains to further differentiate his product from his competitors.

This is a true fully integrated seed to shelf company. Everything is grown and processed in-house.

Next Green Wave facility

The company recently announced the opening of their new 35,000-foot facility in Coalinga, California.

Mike was really excited about the home of Next Green Wave. He explained that the location was purposely selected for distribution reasons. The facility sits between the two largest marijuana markets in California: the San Francisco Bay Area to the north and Los Angeles/San Diego to the south.

The new facility is a state-of-the-art indoor cultivation center with 14 climate-controlled grow rooms that can hold up to 11,000 plants and produce 9,000 pounds of ultra-high quality flower annually. It will also house two nursery rooms and the company’s coveted R&D laboratory.

All processing and packaging is also done at the facility.

WATCH VIDEO: Next Green Wave facility tour

Check out the company video above that gives a tour of the facility and future expansion plans.

I asked Mike if he had plans for expanding into the other states where recreational marijuana had recently become legal.

His take on expansion into other states was one of caution or timely execution. He is more interested in expanding and perfecting the business model in California before launching into other states. He explained that the California cannabis market was by far the largest and most lucrative today and that the business still has plenty of room to grow there.

I appreciated his business modelling approach. Far too many times companies such as canopy, Tilray, Aphria and Cronos all got ahead of themselves thinking of expansion plans before having a solid base to grow from. My thoughts are “get your own backyard in order and prove yourself first.”

Mike wants to grow Next Green Wave into a solid profitable business and market leader in California first. Once this objective is accomplished, then he will consider expanding into other legalized states.

A Cannabis Business Model That Is Profitable

The numbers speak for themselves.

Mike’s business plan for Next Green Wave Holdings Inc. (OTCQX: NXGWF / CSE: NGW) is working and the company has now been profitable for the past six months. In October, the company recorded $1,000,000 adjusted EBITDA.[6], [7]

The company has seen their stock price rocket up 373% since January 2020. And yet, it currently trades for less than US$0.50 cents per share.

This company is still growing and finds itself in the early stages of a multi-billion-dollar California market. I believe the company will continue fine-tuning its business plan and further continue to gain market share in the lucrative and what is today’s largest legal marijuana market. Early investors could see triple-digit gains over the next year if the company continues to execute its business plan and build on its profitable stature.

At the current share price and market cap of US$42M, I believe Next Green Wave provides meaningful value when compared to big cannabis companies such as Canopy, Tilray, Aphria and Cronos that historically have all seen their market caps skyrocket to unrealistic values, all the while spending and losing money like a drunken sailor.

But don’t take my word for it. Do your own research and please take it upon yourself to dig in deeper. I think you will agree with me, Next Green Wave could be a potential 2021 golden goose in the cannabis space.


MF Williams, Contributor
for Investors News Service

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DISCLAIMER: Investing in any securities is highly speculative. Please be sure to always do your own due diligence before making any investment decisions. Read our full disclaimer here.

Published November 2020


Sources:

[1] https://news.gallup.com/poll/323582/support-legal-marijuana-inches-new-high.aspx

[2] https://www.theguardian.com/us-news/2020/nov/14/marijuana-legalization-us-elections-2020

[3] https://www.forbes.com/sites/irisdorbian/2019/08/15/california-is-worlds-biggest-legal-pot-market-says-new-report/?sh=183345464cd7

[4] https://www.statista.com/statistics/1070983/cannabis-market-size-estimates-in-select-us-states/

[5] https://newfrontierdata.com/cannabis-insights/explosive-growth-legal-adult-use-medical-marijuana-markets/

[6] https://finance.yahoo.com/news/next-green-wave-surpasses-6-114400588.html

[7] https://finance.yahoo.com/news/next-green-wave-records-us-124400478.html

MF Williams
MF Williams came to FNN with an already impressive career analyzing small and microcap companies. He became involved in banking and finance working for BNP Paribas North America in New York City in early 2000. He soon found his true passion in small and microcap sector stocks, with their dramatic potential for upside growth. With over 20 years of experience analyzing and researching emerging small cap public companies, his insight and skill set are unmatched.
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