This Manitoba-based firm aims to have 20 retail stores open by 2021 as it expands its cannabis growing capacity. It also has a partnership with Canopy Growth, and a potential deal with a big Canadian drug store chain. Still, it will need more to power its future growth.
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DELTA 9 CANNABIS INC., $1.71, symbol NINE on the Toronto Venture Exchange (Shares outstanding: 85.6 million; Market cap: $146.4 million; TSI Cannabis Quality Rating (CQR): ; www.delta9.ca), produces and sells cannabis and cannabis-based products for the medical and recreational cannabis markets. The company also manufactures and sells modular grow-op pods. Delta 9’s growing, manufacturing, and retail operations are based in Winnipeg, Manitoba.
Delta 9 was founded in 2012 and obtained a license to distribute medical cannabis in 2014. The company’s shares began trading on the Toronto Venture exchange in November 2017 at $0.65 each.
The cannabis producer is one of only four suppliers to be awarded licenses to operate retail marijuana stores in Manitoba. The company opened its first location in Winnipeg in October 2018, in partnership with Canopy Growth (symbol WEED on Toronto). It plans to have 20 retail stores operating in the province by 2021.
As an alternative revenue stream, Delta 9 sells and services its exclusive Grow Pod system. Grow pods are a stackable hydroponic system that uses repurposed shipping containers. The self-contained units allow for complete climate control and vertical space utilization. The company believes that a major benefit of these self-contained units is that they lower the risk of total crop failure by preventing the spread of pests and disease. As well, production can be scaled up gradually to match capital resources and product demand.
Delta 9 now operates its wholly owned subsidiary, Delta 9 Bio-Tech Inc., as a licensed producer of medical marijuana; it also operates an 80,000-square-foot production facility in Winnipeg and owns 50% of the 70,000-square-foot Delta West facility in Alberta.
The company plans to fill out its current production facility with as many as 600 Grow Pods and so expand its output to 17,000 kilograms of high-grade cannabis per year by 2020.
Delta 9 also plans the construction of a 30,000-square-foot in-house cannabis extraction facility. That expansion is expected to cost $115 million.
In April 2018, the company entered into a preferred supplier agreement with Pharmasave Drugs, Canada’s second-largest independent drug store chain (with over 650 outlets). This deal should eventually open up a large market for Delta 9’s medical cannabis.
In February 2019, the Saskatchewan Liquor and Gaming Authority authorized the company to supply cannabis directly to the province’s retail and wholesale markets.
In partnership with Fort Garry Brewing, Delta 9 is developing cannabis-infused beverages for when the federal government permits those “edibles” this fall.
The company’s revenue in 2017 was $944,114, up 89.5% from $498,334 in 2016. It lost $7.9 million, or $0.14 a share, up sharply from its loss of $1.5 million, or $0.04.
In the three months ended September 30, 2018, revenue jumped 311.7%, to $1.3 million from $303,877 a year earlier. Most of the increase was from wholesale shipments of recreational cannabis.
The company lost $2.4 million in the latest quarter compared to a loss of $716,015 a year earlier, as Delta 9 continued to invest in site renovations and its workforce. On a per-share basis, and on more shares outstanding, the loss was $0.03 compared to $0.02 a year earlier.
The company ended the quarter with $23.2 million in cash.
Delta 9 has a secure position in the Manitoba retail market, in partnership with Canopy Growth. However, beyond that, its growth prospects appear limited. Its Grow Pods have conceptual appeal, but it’s far from certain they can supplant the greenhouses that dominate the industry.
Delta 9 has a 2.5-Leaf Cannabis Quality Rating (CQR). We don’t recommend shares of Delta 9.
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