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Production capacity of Harvest One Cannabis Inc. (TSXV:HVST) is expected to grow to 8,000 kg in 2018, reaching 35,000 kg by 2019

SmallCapPower | January 5, 2018: Harvest One Cannabis Inc. (TSXV:HVST) is a global cannabis company serving the medical cannabis markets internationally and is preparing to serve the new Canadian recreational cannabis market. Harvest One Cannabis operates through its two wholly-owned subsidiaries, United Greeneries Holdings Ltd. and Satipharm AG. United Greeneries is based in Vancouver, BC and holds a Canadian ACMPR cultivation and sales license for its 16,000 sq ft facility at Duncan, BC, with 1,000 kg of annual production capacity. Satipharm is based in Germany and holds global marketing and distribution rights to a Gelpell® Microgel technology for all cannabis-related products. As a result, Harvest offers exposure to both the growing Canadian and German recreational markets.

Despite the run up of over 70% during the past three months, Harvest One Cannabis stock trades at a market cap of just $110 million, which looks compelling given its aggressive expansion plans both within Canada and internationally.

Investment thesis

Presence across select favourable jurisdictions

Significant expansion plans – production to reach 35,000 kg by 2019

Dual focus on medical and recreational cannabis with presence across favourable jurisdictions

Based in Switzerland, Satipharm is focused on oral delivery technologies and holds the exclusive global marketing and distribution rights to a Gelpell® Microgel technology for all cannabis-related products. Satipharm recently received “Free Sale Certificate” by German authorities, which has significantly expanded its distribution network with a focus on the largest European consumer markets, such as Germany, Denmark, UK, Ireland, Netherlands, Spain and Austria. In May 2017, Satipharm’s Australian-based distribution partner, HL Pharma, successfully imported its first shipment of Satipharm CBD capsules. Satipharm’s proprietary Gelpell technology is also being used in two Phase 2 clinical trials underway through PhytoTech Therapeutics of Israel.

Additionally, Harvest One Cannabis is planning to import Satipharm’s products into Canada and has applied to become a Licensed Dealer under the Canadian Narcotics Control Regulations. If successfully imported, the capsules may be sold as a medical cannabis product under the Company’s ACMPR licence and will give the Company a significant first-mover advantage in the Canadian market and will be a strong catalyst for revenue growth in the near term, as the GMP produced Gelpell Microgel capsules are expected to be the first pharmaceutical grade product available in the ACMPR market.

Significant expansion plans – production to reach 35,000 kg by 2019

United Greeneries (subsidiary of Harvest One Cannabis) is planning an expansion at The Chemanius, BC, for which the Company has already inked a LOI with a third party. Phase I of the project is fully-funded and is expected to be completed in 2018, with an annual production capacity of 8,000 kg. The LOI further includes an additional eight acres on the site, which could produce over 35,000 kg per year on a full build out expansion scenario.

United Greeneries’ other facility, Lucky Lake Facility, SK, is a 62,000 sq ft on 18 acres site, and is currently at the ACMPR security clearance stage of review. Once approved, the facility could produce 12,000 kg annually. Harvest One Cannabis also owns 398 acres of prime agricultural land in a unique geographical location with potential harvest of 50,000 kg in September 2019, if regulatory changes allow outdoor growing.

Production capacity expansion

Post expansion of The Chemanius Facility, Lucky Lake ACMPR approval, and a potential outdoor growing regulation, Harvest One’s total annual capacity could reach a whopping 100,000 kg by 2019.

Financial performance could significantly improve in the coming quarters

Harvest One Cannabis generated revenues of $170K for the three months ended September 2017, solely from the sales of cannabis-based pharmaceutical products throughout Europe. With the receipt of an ACMPR sales license in October 2017, revenues could expand significantly in the coming quarters, as Harvest One could sell its cannabis product for the upcoming recreational market, as well as import capsules from Satipharm, for medical sales in Canada. Production capacity expansion in 2018 to 8,000 kg and further to 35,000 kg by 2019 could drive revenues multifold. Profitability and earnings per share should also improve meaningfully over the coming quarters driven by economies of scale and operating leverage.

Outlook and valuation

Harvest One Cannabis is well positioned to capture both the recreational and medical cannabis market opportunity both in Canada and in Germany. The Company’s revenues and profitability are expected to improve significantly as it begins cannabis product sales in Canada from its domestic facilities, while importing proprietary capsules from its German subsidiary Satipharm. Concurrently, its opportunity for international distribution networks throughout Europe and Australia could also drive the Company’s growth moving forward. Harvest One Cannabis’ current valuation ($115 million market cap) does not reflect the significant potential for operational capacity over the coming quarters.

Disclosure: Neither the author nor his/her family own shares in the company mentioned above.

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