SPRWF: Supreme Pharmaceuticals (CNSX:SL) Analysis and Research Report

2017-12-22 - by Asif

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Supreme Pharmaceuticals is a federally incorporated Canadian company. Supreme is focused on developing cannabis-focused businesses in the emerging global cannabis market. Management believes cannabis represents one of the world's most exciting emerging industries. Cannabis is consumed globally but in most countries consumption is still illegal. Recently, international jurisdictions have been re-evaluating their respective cannabis policies and legislation as part of a growing trend towards the legalization of medical cannabis and, in some cases, recreational cannabis.

Canada first legalized cannabis for medical purposes in 2001 with the creation of the Marihuana Medical Access Regulations (the "MMAR"). In 2013, the MMAR was replaced by the Marihuana for Medical Purposes Regulations (the "MMPR"). The MMPR created a federally legal and regulated framework for commercial cultivation, distribution and sale of medical cannabis by licensed entities (a "Licensed Producer"). In 2016 the MMPR was replaced by the Access to Cannabis for Medical Purposes Regulations (the "ACMPR"), which maintained the class of Licensed Producers as the sole-cultivators of federally legal and regulated commercial cannabis in Canada.

Supreme's first and primary asset is 7ACRES. 7ACRES a federally incorporated corporation wholly owned by Supreme. On March 11, 2016, 7ACRES became a Licensed Producer. 7ACRES operates a 342,000 sq. ft. cultivation facility (the "FacilitV') located in Kincardine, Ontario. The Facility is an innovative cultivation platform combining the best aspects of indoor and greenhouse cultivation with a goal to produce premium cannabis flowers for direct consumption. The Facility is designed to provide a platform to produce high quality cannabis at scale, positioning the Company to compete in the premium segment for dried cannabis flowers. Management believes the premium product segment represents a superior opportunity to compete on quality and generate strong contribution margins per gram versus competing in the lower quality product segment of the market. Management believes high quality cannabis is essential for success and is necessary to combat competition from the black market and low-cost producers.

Supreme intends to position 7ACRES as Canada's leading Business-To-Business ("B2B") Licensed Producers and leverage its perceived quality advantage by working with multiple re-sellers to capture the premium market segment. Consequently, management is focused on developing and maintaining 7ACRES' position as a leading Canadian cultivator of premium cannabis flowers at scale. Sales of cannabis are completed via legal and licensed Canadian retailers, which is currently restricted to only Licensed Producers in Canada. The B2B model is designed to allow 7ACRES to grow its revenue through high value bulk sales while maintaining its focus on cultivation, without the expense of patient acquisition and retention or retail order fulfillment and logistics.

Currently, Supreme's cannabis business is focused on Canada. Supreme is considering opportunities in emerging cannabis markets where medical and/or recreational cannabis is federally legal.

Supreme does not, directly or indirectly, have any business operations in jurisdictions where cannabis is not federally legal, such as the United States.

Recent development

On December 18, 2017 the company changed its name to "The Supreme Cannabis Company".

December 18, 2017 Supreme Pharmaceuticals Inc. made a purchase of an approximately six acre property adjacent to the 7ACRES facility in Kincardine, Ontario. Supreme expects to build an indoor cultivation facility ("Lot 16") to produce high quality, "California-Style" cannabis for the premium product segment.

Supreme is currently in the design phase of the project and intends to break ground in the summer of 2018. The Company intends to complete the project by the end of 2019. Supreme anticipates that Lot 16, once fully operational and subject to licensing by Health Canada, will produce 10,000 kg per year of premium "California-Style" indoor cannabis. Supreme intends on using lighting, HVAC and irrigation infrastructure ideally suited to cultivating premium cannabis cultivars. Lot 16 is expected to employ Supreme's proprietary post-harvest processes to produce dried cannabis flower that is slow-dried, artisanal cured and finished by hand. Supreme intends to market the Lot 16 dried cannabis flower as an ultra-premium consumer product and pursue favorable pricing economics with current and future retail partners. Supreme acquired the Lot 16 land for $1,927,200.

October 23, 2017 - Supreme Pharmaceuticals Inc. announced that 7ACRES has obtained the Health Canada approvals necessary to commence cultivation at the recently completed 30,000 sq. ft. flowering rooms at the Company's Hybrid facility. The additional flowering area consists of three modular 10,000 sq. ft. flowering rooms representing the most recent innovation of 7ACRES' hybrid cultivation methodology. The additional flowering rooms increases the size of 7ACRES' flowering facility from 10,000 sq. ft. to 40,000 sq. ft. The additional flowering rooms were approved pursuant to Health Canada's revised licensing process, announced in May 2017.1 The new revised process replaces the need for a pre-license inspection with an in-depth paper-based process intended to streamline the approval of additional capacity at a licensed site.

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