By Lorimer Wilson, editor of munKNEE.com (A site for sore eyes & inquisitive minds)
Cannabis extraction is a vital component of any vertically integrated cannabis company, yet most such companies do not have the capacity to meet the rapid growth in oils and that is why companies that specialize in the extraction of oils have become so important and have become such hot investment prospects. This article reviews 4 Canadian cannabis extraction stocks that are poised to capitalize on what could be the next big cannabis investing trend – extracted products.
Cannabis extraction companies function as the middle-man of sorts in the cannabis supply chain, purchasing dried cannabis, extracting the oil-like substance containing THC or CBD from the plant, and selling it back to the same producers, or to other producers that have requested cannabis extract.
With more countries legalizing medical and/or recreational cannabis, the extraction of the plant’s oils to meet the demand for vapes, oils, tinctures, edibles, beverages, capsules, and shatter* are likely to outpace the sales of dried flower once these markets mature. (*Shatter is a type of butane hash oil (BHO) cannabis extract made from trichomes stripped away from cannabis flowers. It is named for its solid form because, when dropped, it breaks or “shatters” like glass.)
Indeed, research in Canada, for example, has shown that flower sales slowed to an average growth rate of 8.0% in the 5 months following the legalization of medical cannabis in Canada back in October, 2018 while oil sales grew at an average of more than 13.4% over that same 5 month period.
Estimated Market Share Over Time By Product Format
Source: Marijuana Policy Group, Leeds School of Business
At this early stage in the market’s development, most growers lack the experienced personnel and specialized knowledge to extract cannabis flower into oil, creating significant demand for third-party processing services.
Below are 4 Canadian cannabis extraction stocks that are poised to capitalize on what could be the next big cannabis investing trend – extracted products.
1. MediPharm Labs Corp. (TSXV:LABS; OTCMKTS:MLCPF)
MediPharm acts as a strategic partner to licensed producers (LPs) providing both white-label CO2 production and contract processing. It is currently processing 150,000 kg/yr. and expects to be processing 250,000 kg before the end of 2019. The Company has signed a number of multi-year extraction contracts with many prominent LPs such as Canopy Growth Corporation, Emerald Health Therapeutics, The Supreme Cannabis Company, and others.
2. Valens GroWorks Corp. (CSE:VGW; OTC:VGWCF)
Valens GroWorks is focused on a specialized CO2 + Ethanol extraction methodology, distillation and cannabinoid isolation and purification. It is currently processing at its extraction capacity of 240,000 kg/year. The Company has signed multiple extraction agreements with major LPs such as Tilray, The Green Organic Dutchman, Organigram and Canopy Growth Corporation.
3. Radient Technologies Inc. (TSXV:RTI; OTC:RDDTF))
Radient Technologies is a Canada-based company that provides industrial-scale extraction using a patented method of extraction called Microwave Assisted Processing that they claim provides cleaner and higher yields than conventional methods. The company is currently processing 91,000 kg/yr with short-term expectations of 274,000 kg/yr and a maximum future capacity of 548,000 kg/yr.
4. Neptune Wellness Solutions Inc. (NASDAQ:NEPT; TSX:NEPT)
Neptune is a wellness products company that specializes in the extraction, purification and formulation of health and wellness products. The company currently is processing 30,000 kg/yr of dried cannabis flower with the capacity to process 200,000 kg/yr. and counts Canopy Growth as one of its many customers.
A Comparison of Current, Likely & Possible Processing (Extraction) Capacity by Company
Source: SEDAR Filings, Grizzle Estimates, StatsCan, Health Canada
Incidentally, the stock performance of the above 4 companies has not outperformed the largest vertically integrated cannabis companies as MediPharm Labs is down 34% from its 2019 high, Valens GroWorks is down 31%, Radient Technologies is down 40% and Neptune Wellness is down 33% from its 2019 high while the market as a whole is down an average of 36%.
The above 4 cannabis extraction companies are just the largest ones in this sector. Others that you may be interested in are Halo Labs Inc. (OTCQX:AGEEF), World Class Extractions Inc. (CSE: PUMP) which just bought out another extractor, Quadron Cannatech Corp. and NextLeaf Solutions Ltd. (CSE:OILS) which are down 40% on average.
While in-house extraction operations will likely continue to fuel many vertically integrated cannabis companies specialized cannabis extraction companies like the ones identified above should play a crucial role in the coming years as new marijuana markets continue to open around the world.
Also read this article: Cannabis Extraction: What is It and Why Should You Invest?