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Asterion Cannabis Inc: THE INVESTMENT CASE
INVESTMENT OVERVIEW

Asterion Cannabis builds economies of scale for competitive advantage

The Vancouver-based medicinal cannabis grower’s Queensland facility will be the world's largest greenhouse cannabis operation, covering a 99-acre site
A cannabis facility
INVESTMENT OVERVIEW: AC The Big Picture
The ambitious project in southeast Queensland will ultimately have an annual capacity in excess of 500,000 kilograms

When it comes to cannabis companies, size matters. There are both big and small marijuana growers, but the truth is, economies of scale come easier to big companies.

That’s why savvy investors should keep a close eye on rapidly growing, medicinal-cannabis producer Asterion Cannabis Inc., a private company eyeing to list in the United States, Canada and Australia next year.

Asterion made investors sit up when it recently announced plans to construct the world's largest purpose-built greenhouse cannabis production facility in Queensland, Australia, after a non-brokered private placement of up to C$5 million.

Economies of scale

The ambitious project in southeast Queensland will ultimately have an annual capacity in excess of 500,000 kilograms. This means Vancouver-based Asterion will be able to feast on economies of scale and have a strong competitive advantage.

The facility will be home to the world's largest greenhouse cannabis operation, covering a 4.3 million square foot site (approximately 99 acres).

“It will be the largest cannabis facility in the world,” said Asterion Cannabis CEO Stephen Van Deventer, pointing out that the Queensland facility would be three to four times bigger than most cannabis facilities.

“I wanted to do something big for a number of reasons. Firstly, I don’t like doing small projects. Secondly, the big winners have already been chosen in Canada — Aphria Inc (TSE:APH) (NYSE:APHA), Aurora Cannabis Inc (NYSE:ACB) (TSX:ACB), Tilray Inc. (NASDAQ: TLRY) and Canopy Growth Corp (TSX:WEED) (NYSE:CGC). They’ve kind of won the war here and they will go and absorb the smaller players. I don’t want to be absorbed. I want to be one of the big ones.”

To be built in three phases, the Asterion facility will be automated and powered by renewable energy. It will also include full extraction and processing equipment, as well as a R&D wing to create next-generation medicinal cannabis products.

Highest quality, lowest cost

Asterion’s mandate is fairly simple: to bring precision agricultural techniques to the cultivation of the distinctive long-frond plant.

This means producing the highest quality, lowest cost but uniformed strains of medicinal cannabis possible.

The company said the new facility will advance the agricultural science of medicinal cannabis and, to that end, the facility is intended to utilize advanced plant tissue culture (PTC) technology that will “eliminate the need for mother plants, provide a greater cultivation footprint,” increase efficiency, lower costs and “yield disease-free plantlets” with genetically uniform strains.

The upside of Down Under

Industry veteran Van Deventer is clear-eyed about why he chose to go halfway around the world to the heart of Australia’s beautiful cattle country in Queensland.

“Canada has too many licensed producers already. To try and get into the market now, you are going to be fighting the big guys,” said Van Deventer.

“Other cannabis growers have been looking at South America. I don’t like South America because I’ve seen many companies go spend money building a mine and then the government takes it away. It’s not stable enough for me. Europe is a great market, but it’s too fragmented right now. I like that Australia is like Canada in its laws and regulations.”

Australia’s rule-based, business-friendly environment is precisely the reason another Van Deventer company, PreveCeutical Medical Inc (CSE:PREV) (OTCQB:PRVCF) has a research and option agreement with University of Queensland.  

READ: Asterion Cannabis unveils plans to build world's largest greenhouse cannabis production facility

“Since we are already doing work in Canada with PreveCeutical it made sense for us to be there,” quipped Van Deventer.

Asterion said the Queensland government recognizes the benefits and opportunities that medicinal cannabis production facilities can provide to the state and is committed to helping the company achieve its goals quickly.

“When we met with the Australian government, Health Minster Gregory Hunt said he wanted Australia to be the largest exporter of medicinal cannabis in the world. So, we said ‘Be careful what you ask for, we will help you!’”

Asterion is in the process of procuring land in Queensland for Van Deventer’s empire-building. Phase one of the construction process will kick off in January or February. Once the initial phase is completed the Queensland facility will start producing 125,000 kilograms of medicinal cannabis a year.

The company will then focus on building the next phase of the facility, which will add another 125,000 kilograms to annual production. With the third and last phase being completed another 250,000 kilograms will be added bringing annual cannabis production capacity to 500,000 kilograms. 

Dream team

Supporting those ambitions is a management team with significant experience in the cannabis field. Van Deventer, for example, spearheaded the financing and reverse takeover of Aurora Cannabis, after helping to create its structure and provide strategic direction. 

Chief operating officer Hamish Sutherland has an equally impressive track record as a team builder, marketing and operations executive with experience growing companies across three continents. He served as the chief operating officer of Bedrocan Cannabis Corp at Canopy Growth Corp and helped deliver over $750 million in returns for shareholders. He also managed the first legal transfer of live cannabis plant material from Holland to Canada.

“We started PreveCeutical and earlier spearheaded Aurora Cannabis’ goal to go public by raising money. We’ve learnt from all the mistakes, we’ve got that back-experience, so we are taking all the things we’ve learnt to move forward,” said Van Deventer, who has chutzpah and experience in propelling companies into the public markets in Canada, the US and Europe.

Investment opportunity

In September, Asterion struck a deal with health sciences group PreveCeutical Medical, another Stephen Van Deventer company, to jointly develop cannabis-derived medical products including sublingual tablets, transdermal patches, and other jointly evaluated products aimed at treating various ailments such as chronic pain, inflammation, epilepsy and anxiety disorders.

“The two companies are both technically in the same life sciences industry, so they complement each other. Asterion is going to produce medicinal cannabis, while PreveCeutical is creating medicinal cannabidiol products so the two complement each other,” said Van Deventer.

Investors looking for hot cannabis stocks should note that Asterion is looking to go public next year with a plan to list in the United States, Canada and Australia. 

“We plan to list in 2019. I am trying to do a dual stock exchange IPO. That’s my intention, but it is contingent on what happens with the financial markets between now and sometime next year. I haven’t made the final call on whether it will be on the Toronto Stock Exchange or New York or perhaps a dual listing,” said Van Deventer.

The cannabis cultivation industry typically requires a lot of capital, but Van Deventer has faced no problems raising capital. He says he likes to take a step-by-step approach.  

“I can go and raise all the money now, but then I am going to over dilute shareholders. Therefore, what I would rather do is raise money slowly to build the Queensland facility out in three phases. That way it’s less dilutive for investors,” said Van Deventer.  

For now, Asterion is currently raising C$5 million in a non-brokered private placement, providing it with the financial runway to formulate its plans.

“We want to be the largest, ultra-low cost medicinal cannabis producer in the world with geographical diversity,” said Van Deventer.

Contact Uttara Choudhury at [email protected]

Follow her on Twitter@UttaraProactive 

 

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