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Category Killer: How to Play the Next Marijuana Super-Cycle

Finally, a marijuana stock that I want to own! This isn’t just any marijuana business…

Sproutly Inc. (CSE: SPR) has made a deal for a breakthrough, patent pending discovery, whereby the active compounds, the THC and CBDs in marijuana, are recovered in water to create a range of products to supply to the Licensed Producers (LPs) and to the food and beverage industry. How big is that? Stick with me—I’m about to show you.

The ability to naturally extract cannabinoids in water is a huge step forward in delivering a wide range of medicinal and recreational marijuana products to a market clamoring for alternatives to inhaled and current generation of oil-based edible forms of consumer products.

What makes this water-based cannabis solution so much better? First, the process doesn’t alter the cannabis compounds. That means consumers should expect a true-to-strain effect.

The traditional extraction methods seen today, on the other hand, using ethanol, butane and CO2, alters the cannabinoids, and in doing so destroys the strain-specific benefit. For example: It’s a lot like taking a fine Pinot Noir and pasteurizing it. It might still be wine, but it’s no longer a fine Pinot Noir. At least not one that I’d drink.

That’s important if you’re a recreational consumer, and maybe even more important if you’re a medical consumer—both of whom effectively rely on a specific strain or brand characteristic for intended recreational or medicinal properties.

Second, the onset time (time to feel the effect) and offset time of this revolutionary water-based product looks to mimic the same effects as inhaled marijuana. That means consumers could feel the effects in five minutes or less, and be free from the desired effect in approximately 90 minutes, completely changing the game how cannabis is ingested with respect to current methods. It’s a giant win from a marketing perspective, but I’ll get into that in a minute…

Third, this revolutionary water-based scientific discovery allows Sproutly to manage the precise amount and potency consumers ingest in future consumer products. That’s big because while research shows a rapidly growing demand for cannabis beverages and edibles, many consumers shy away because they are unsure just how much active ingredient and what potency they are getting.

To top it all off, and I cannot stress this enough… the company’s water-based cannabinoids can be readily mixed with other liquids and stay truly dissolved in those liquids without the use of additional compounds to keep them dissolved.

I can’t overstate the importance of a natural product, rather than a chemically altered one, in this market space. Hence my position that Sproutly is a category killer, if there ever was one!

As I’ve already said, Sproutly’s pending acquisition for this breakthrough science is patent pending. Maybe even more important, it would be ridiculously difficult for someone else to re-invent it. That means the company’s unique advantage and position in the coming Marijuana Super-Cycle is very well protected.

12 Years of Research and Development

The process was developed by Dr. Arup Sen, who holds a Ph.D. in biochemistry from Princeton University. He has published several dozen papers in top-ranking international journals, authored a book on bone diseases, and is an inventor on a number of US patents and numerous international patents.

He also has pending patent applications in the fields of cancer therapeutics, bone repair biologics, medical therapeutic devices, and molecular diagnostics.

In addition to Dr. Sen becoming the Chief Science Officer (CSO) and director of Sproutly Inc., Dr. Sen has over 36 years of experience in senior roles in public biotechnology and biopharmaceutical companies, and spent nearly a decade-long academic career as a faculty member at the National Cancer Institute and at the Scripps Research Institute focused on cancer research[1]… So I think he knows his stuff.

How Big is the Market Opportunity for Sproutly?

As Canada has legalized marijuana for recreational purposes, the Canadian recreational market size is estimated at up to $8.7 billion— about the same size as the Canadian market for wine.[2] That volume is generally forecast to grow to anywhere between $10 billion and $20 billion over the next five to seven years. That’s just Canada, and it doesn’t include another billion or more annually in the medical market.

By conservative estimates, the total North America market, including U.S.A. legalized states, is expected to approach $50 billion in the same timeframe.[3]

In addition, let’s realize the total immediate market opportunity for Sproutly Inc. With the acquisition of Infusion Biosciences Canada Inc., Sproutly would have exclusive rights to the APP water-soluble technology in Canada, Australia, Israel, Jamaica, and the entire European Union. (Just about anywhere cannabis is legal.)

Is it any wonder companies like Constellation Brands—one of the largest alcoholic beverage companies in the world with brands such as Corona Beer and Svedka Vodka—recently invested C$245 million to get a foothold into the marijuana industry through a 9.9 percent stake in Canopy Growth Corp.

The two companies plan to collaborate on cannabis-based beverages that can be sold as adult products. I question how far their collaboration will get them when they go up against Sproutly’s game changing offering.

When it comes to preferred methods of delivery, alternatives to inhaling is the place to be. Twice as many non-users in Canada have expressed interest in consuming edible cannabis products or drinks as opposed to smoking marijuana. This cannot go ignored, as consumers have indeed set the bar! I’m betting this expectation is shared among people in every other legalized country and jurisdiction.

Markets for Sproutly could turn out to be much larger. For example, makers of soft drinks, seeing their sales at 30-years lows, are always looking for the next big thing. CBD-infused drinks could be the new soda, just as vitamin-infused water and coconut water have become popular.[4] CBDs are the non-psychoactive compound in cannabis, which plays well into the nutraceutical market.

As for THC-infused beverages, Sproutly’s water-based Infuz2O solution has already been attracting interest from both Licensed Producers (LPs) and from food and beverage companies; and we could see the company announce significant deals in coming months. I’m making this claim only because right now, according to the company, this is the world’s only natural-cannabis water-soluble solution![5]

The company’s Infuz2O natural water-soluble solution is totally superior to traditional oil extractions when it comes to the food and beverage markets. Part of that is due to the fast, predictable onset and offset times I mentioned above.

Compared to products made with old-school extraction methods, Sproutly’s Infuz2O natural water extraction process has an onset of about five minutes, compared with around 45 minutes for oils. Offset is within 90 minutes (+/-), compared to up to four hours or more for most oil-based current offerings.

This is a critical factor in giving consumers control over the amount they ingest. We’ve already seen cases where people over-consume because of slow onset, or get behind the wheel of a car shortly after consumption only to find themselves highly impaired fifteen minutes later while driving. I don’t want to be a passenger in that car, thanks.

Another critical factor is that Infuz2O is a totally natural product. That makes it more cost effective and safer in manufacturing, and gives food and beverage makers the ability to offer all-natural products, while giving consumers any health benefits they may demand, subject to the strain used.

I really like the company’s go forward strategy. Sproutly has a modest, state-of-the-art ACMPR licensed cultivation facility near the Toronto city core than can cultivate and grow 1,400kg per year—producing enough marijuana for about 10 million units of Infuz2O. The operation is highly scalable…

Future Commoditization Plays into Sproutly Business Plan

One of the reasons I’ve stayed back from marijuana stocks thus far, is the fact that ultimately, most companies operating in this space are in a commodity business. Whether you agree with me or not, that spells price competition and shrinking margins to come. No doubt, that thinking was behind a pull back on so many MJ stocks within the capital markets earlier this year.

In this case, commoditization plays directly into Sproutly’s plans. With the ability to scale beyond its 16,600 sq. ft. facility, the company can expect to bring more product to market at a lower cost base as market flower reaches a glut, and what I am predicting to be a wholesale price fall in the years to come.

A Very Unique Bonus for Investors

As an added bonus, Sproutly has a Government of Canada approved Level-9 vault located eight kilometers from the city of Toronto, facilitating same day delivery (within approximately 14 minutes) to consumers.

Sproutly can service up to 6.4 million adult consumers by offering distribution services for other Licensed Producers (LPs). They are the only MJ company with this type of vault in such close proximity to Canada’s largest urban center.

I’d argue that active investors in the marijuana sector have begun to take a closer look at their current portfolio holdings into MJ Licensed Producers (LPs) they are positioned in.

They are coming to the realization that going forward… it will be science and intellectual property, married with next-stage consumer products, that will determine the ultimate winner. Either LPs find a way to partner with these next-stage companies like Sproutly, completely sell out, or find themselves minimalized to a commoditized business with falling margins and very little upside moving forward.

 The First Real Player in the Upcoming Marijuana Super-Cycle is Here

Companies like Sproutly (CSE: SPR), with the ability to position themselves in a high-growth segment of the consumer goods market chain, having unique revolutionary products, stand to be big winners in the upcoming Marijuana Super-Cycle. That’s why, in this investment segment, it’s the only stock I currently own.

 

Sources:

[1] https://infusionbiosciences.com/our-company/?doing_wp_cron=1529369228.7814710140228271484375

[2] Deloitte, Recreational Marijuana Insights and Opportunities

[3] https://www.forbes.com/sites/thomaspellechia/2018/03/01/double-digit-billions-puts-north-america-in-the-worldwide-cannabis-market-lead/#3a63fbb86510

[4] https://www.inc.com/will-yakowicz/cannabis-infused-beverages-could-be-the-new-soda.html

[5] https://gallery.mailchimp.com/cfd5ac3be5a5bb59ccfdc14dc/files/47b4c99e-1217-470d-ae51-dda4107f0be1/Sproutly_Infusion_Investor_Deck.pdf

 

The article originally appeared on Financial News Now.

 

DISCLOSURE: Sproutly Inc. (CSE: SPR) is a Blake Desaulniers portfolio holding. Blake Desaulniers has not received any payment for the writing of this article.