The cannabis sector has been trending higher and has been coming well off its summer lows. We have been monitoring this trend and are favorable on the recent price movements.

With Canada’s recreational cannabis market opening in less than a month, demand for legal cannabis is expecting to surge higher and this is a trend we will be monitoring closely. Demand for legal cannabis has been increasing all over the world and this comes as many countries are revising regulations to legalize it.

As demand for legal cannabis continues to increase, demand for services like independent laboratory testing will increase as well and we have been monitoring the businesses that will benefit from the continued growth of the cannabis industry.

We have been favorable on the cannabis lab testing industry and expect it to be a major beneficiary of the legal cannabis movement. One company that has been capitalizing on this emerging opportunity is EVIO Inc. (EVIO Labs) and we have been monitoring how the team continues to execute.

The cannabis lab testing company has been laser focused on expanding its reach and has been executing flawlessly.

In the Middle of a Major Expansion

EVIO is highly levered to the United States cannabis lab testing opportunity and is in the middle of a major expansion. From California to Florida, the cannabis lab testing company is focused on some of the most exciting cannabis markets.

We are especially advantageous on the California lab testing opportunity following a change in regulations on July 1st. Legislation requires retailers to only sell cannabis products that have been tested by a licensed independent third party and this has served as a major catalyst for companies like EVIO.

The California cannabis market is the world’s largest cannabis market and the leverage to this opportunity is very exciting. Earlier this year, EVIO acquired a cannabis laboratory in Berkley and this facility is expected to be a major growth driver for the company. Earlier this month, EVIO increased its ownership interest in the lab to 90% from 60% and we are favorable on the larger ownership interest.

In late June, EVIO’s Northern California laboratory in Berkeley announced a major milestone attaining the ISO 17025 accreditation, the world’s highest recognized quality standard for calibration and testing laboratories. Following the change in regulations, EVIO Labs Berkeley is well-positioned to meet the increase demand for analytical testing services for regulated cannabis and is prepared for these heightened regulations.

Announces a Major Milestone in Canada

Earlier this month, EVIO announced a major development and received an approval from Health Canada on an amendment of its Dealer License that will expand the product and service offering for EVIO Canada’s Keystone Labs in Edmonton.

In May, EVIO Canada acquired 50% stake in Keystone Labs and we are favorable on the leverage to the Canadian cannabis market. The amendment allows Keystone Labs to support product innovation in the cannabis industry. Keystone Labs can now manufacture, process, package, label, and sell cannabis related products to Licensed Producers and Licensed Distributors.

This is a significant development and enhances the value proposition of the entire company. The amendment is a game-changer and will allow Keystone Labs to work with Canadian Licensed Producers as a contract manufacturer of approved cannabis products as well as to perform research and development activities to develop novel extraction methods and product formulations.

In addition, Keystone Labs will be able to send, transport and deliver legal cannabis (raw materials, samples, processed products, finished goods, etc.) throughout Canada. The ability to send and transport is important, as it will allow Keystone Labs to partner with other third-party test labs to outsource testing that we currently offer our clients and vice versa.

A Stronger Balance Sheet

EVIO recently announced that it had retired all its outstanding convertible debt and this is an important aspect of the story. In 2018, EVIO has raised capital and has been putting this money to work in ways that will prove to be lucrative to the business.

The cannabis lab testing company is in the middle of a major expansion and this a company that investors need to be watching. EVIO is focused on the cannabis markets in California, Colorado, Florida, Massachusetts, Oregon, and Canada. We are favorable on this opportunity and find these marijuana markets to be attractive due to the growth potential and the geographic locations. As demand for legal marijuana continues to increase, EVIO will benefit from the increased demand for testing services.

Going forward, EVIO has several levers for growth and this is a story we believe is underappreciated by investors. During the last year, the company has made several strategic additions to the executive team and we are favorable on this aspect of the story.

A Stock to Watch

Although the cannabis sector has been trending higher, EVIO has been under pressure and we are keeping a close eye on this burgeoning opportunity. With a market cap that is below $18 million, we find this to be a very undervalued opportunity and will be monitoring how the team continues to execute.

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