Last month, we highlighted LiveWell Canada Inc. (LVWL.V) after the shares commenced trading on the TSX Venture Exchange. Although the Canadian cannabis producer has been executing flawlessly, the shares have been trading lower with the market and we are keeping a close eye on this one.

LiveWell represents a differentiated and undervalued opportunity. The company has a strategic relationship with a global cannabis leader, is in the middle of a major growth cycle, and is an execution story. Today, we have issued an update on the company and believe that this is a company worth watching.

Focused on Becoming a CBD Leader in 2019

Earlier this week, Livewell announced a major milestone and secured 1,000 acres of Canadian industrial hemp biomass for the purpose of extracting and producing Cannabidiol (CBD) full spectrum oil and isolate for distribution in Canada and internationally (where permitted). Using current extraction technology licensed to LiveWell, the company anticipates extracting approximately 25,000 kg of CBD isolate for sale under the ACMPR. It is expected to be harvested in mid-August and brought to market in 2019.

Based on observable broker quotations, the current wholesale value for each kilogram of CBD isolate is approximately US$6,500 (for reference retail price as a finished good is US$50,000 – US$230,000/kg). Additionally, as part of this transaction, LiveWell secured an option to buy an additional 1,000 acres of Canadian industrial hemp biomass at the same price no later than September 30th. The total purchase consideration for this transaction was US$10 million.

Although this was a significant announcement, the shares were under pressure. This purchase is in line with the company’s strategic vision to become a global CBD market leader, by delivering high-quality innovative CBD health and wellness products. We are favorable on this aspect of the business and expect it to add value in 2019.

Strategic Relationship with Canopy Growth and Rivers

In April, LiveWell signed a strategic agreement with Canopy Growth (WEED.TO) (CGC) and Canopy Rivers to accelerate the development and commercialization of Livewell’s large scale cannabis projects in Ottawa, ON and Pontiac, QC, which collectively represent over 1,500,000 sq. ft. of cannabis production and processing infrastructure. Together Canopy and Rivers own approximately 11.5% of the company.

This announcement was a significant development and we are bullish on this relationship. When it comes to potential partners, there could not be someone better. Canopy Growth is a clear leader in the global marijuana industry and this relationship is a major benefit for LiveWell. We are going to monitor how this adds value over going forward and consider this to be a major differentiator.

Canopy Rivers will work collaboratively with Canopy Growth to accelerate LiveWell’s speed to market and deploy the resulting offtake through Canopy Growth’s distribution network including its online marketplace, Tweed Main Street and via provincial distribution channels. Livewell’s Ottawa project is located close to Canopy Growth’s Smith Falls headquarters and represents a complimentary supplement to Canopy’s portfolio of production and distribution partners.

LOI for investment from the Quebec Government

Another release the company made a few weeks ago that virtually went unnoticed was the signing of an LOI with the Government of Quebec, for an investment of up to 25% of the Quebec project which includes a Global innovation Centre. This is the first large scale interest we have seen of any government agency (municipal, provincial, federal) indicating that they want to invest in the space. We view this as a major endorsement of the innovation insights, vision, and team at LiveWell. The upside in Quebec is significant as there are only 8 LPs but 23% of the population; in contrast Ontario has 62 LPs and 37% of the population, thus Quebec is just at the starting line and LiveWell is well down the path to have a great government partner.

The Quebec Project itself consists of a Global Innovation Centre that will house academic and research partnerships putting LiveWell at the forefront of advancements in Cannabinoid research, product development, and patient outcomes. There is an associated 1mm square foot hybrid greenhouse grow that will be built on the 500 acre site. The first phase of 100,000 square feet is scheduled to be completed late 2018/early 2019.

Ottawa Project is Approved by City Council

Earlier this year, LiveWell Foods received approval from Ottawa City Council to turn its existing 540,000 square feet greenhouse into a cannabis production facility, known as the Ottawa Project.

The Ottawa Project is owned by LiveWell’s wholly owned subsidiary Artiva and will retrofit 540,000 square feet of existing greenhouses that are located on 100 acres of farmland, 10 minutes from the nation’s capital. This is strategically positioned only 45 minutes from Canopy’s headquarters at Smiths Falls. The first phase of the project (108,000 square feet with 20,000 sq. ft of licensed growing space) is expected to be completed and licensed later this year.

This was a significant approval for LiveWell and we are bullish on this aspect of the business. The relationship with Canopy Growth and Canopy Rivers makes this asset very significant for LiveWell as it will prove to be a major value driver for the company.

In the Middle of a Major Growth Cycle

LiveWell has been executing flawlessly on a strategy to construct two massive greenhouse facilities in Ontario and Quebec. We find these locations to be strategically located as they will position LiveWell in Canada’s two largest provinces. On a combined basis livewell is planning up to 1.5mm square feet of greenhouses making it one of the largest producers in the country.

LiveWell is focused on being a low-cost producer and we are very favorable on this focus. The Ottawa facility is expected to optimize cannabis production at less than $0.90 a gram while the Quebec facility is expected to produce cannabis at less than $0.75 a gram. This provides LiveWell with a significant advantage and are bullish on this aspect of the story. Other Licensed Producers that did not have the foresight or the resources to achieve such cost infrastructure will suffer in the future when the market matures, and the threat of a supply shortfall subsides, ultimately compressing margins.

Big on Big Data

In an increasingly competitive world LiveWell is very cognizant of utilizing big data in everything it does. Operations, customer acquisition, patient outcomes, etc. are all being monitored to gather data that will be used to gain insight into what is working and what isn’t. With a focus on the customer, LiveWell is using data to understand their needs and create product to meet those needs. We think this is smart, why blindly guess at what the customer wants when science and data can help you hone on finding tailored solutions to preferences and tastes.

A Company to be Watching

Although LiveWell has been executing, the shares have been trading lower with the market and we think the company offers a compelling opportunity. LiveWell is in the middle of a massive growth cycle and is focused on two major buildouts. Through Canopy Growth and Canopy Rivers, LiveWell is well positioned to reach cannabis consumers all over Canada and this is an attractive aspect of the story.

LiveWell is led by a management that is focused on execution and we find this to be important. The company has been executing on previously announced initiatives and is on-track with its timelines. We think the recreational market will be undersupplied and this will be a benefit for LiveWell.

As the summer season ends we expect to see the cannabis market turnaround and investors should be watching this one. To keep up to date with LiveWell Canada please email support@technical420.com