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Delta 9 Cannabis drives high-octane growth by bringing quality cannabis products to market

Snapshot

The company - one of Canada’s original cannabis companies – sells products through its wholesale and retail sales channels and markets its cannabis ‘Grow Pods’ to other businesses

Delta 9 Cannabis store

Quick facts: Delta 9 Cannabis Inc.

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TSX:DN

Price: 0.44 CAD

Market Cap: $46.16 m
  • Delta 9 Bio-Tech is a licensed producer of medical and recreational cannabis with a production facility in Winnipeg
  • Operates 13 cannabis retail stores under the ‘Delta 9 Cannabis Store’ brand in two provinces
  • Business to Business’ segment, selling its own proprietary ‘Grow Pods’

What Delta 9 Cannabis does:

Delta 9 Cannabis Inc is a vertically integrated cannabis company focused on bringing the highest quality cannabis products to market.

The company - one of Canada’s original cannabis companies – sells products through its wholesale and retail sales channels and markets its cannabis ‘Grow Pods’ to other businesses.

Delta 9's wholly-owned subsidiary, Delta 9 Bio-Tech Inc., is a licensed producer of medical and recreational cannabis and operates an 80,000 square foot production facility in Winnipeg, Manitoba, Canada, which was first licensed in March 2014. The company sells its recreational cannabis products in markets across Canada.

The group also currently operates cannabis retail stores under the ‘Delta 9 Cannabis Store’ brand in two provinces, with plans to open additional outlet retail stores in jurisdictions which allow for privatized cannabis retail over the next 24 months.

Delta 9 also has a ‘Business to Business’ segment, selling its proprietary Grow Pods, Cannabis genetics, and providing consulting and licensing services to other cannabis businesses.

Grow Pods are modular, scalable, and stackable production units that are based on retrofitted 40-foot shipping containers.

The company has also adapted its technology to help in the fight against coronavirus (COVID-19), launching Decontamination Pods - D-Pods - a retrofitted shipping container specially equipped with UV lights and heaters that will kill the virus on things like personal protective equipment.

The D-Pods are being manufactured at the same facility in Manitoba where the Grow-Pods are developed. The company has inaugurated a subsidiary, Blue Horseshoe Manufacturing Inc that will be responsible for producing up to 20 D-Pods per month, depending on demand. Priced around $250,000, the group said in December that they were already gaining interest from customers in both the public and private sector.

How is it doing:

Delta 9 Cannabis has been firing on all cylinders so far in 2021.

In September, its subsidiary Delta 9 Cannabis Store Inc closed a transaction with 1884356 Alberta Ltd. to acquire the vendor’s assets relating to two retail cannabis stores in Edmonton, Alberta for $2.35 million. At least $940,000 of the purchase price was settled through the issuance of 2,243,437 shares at a price of $0.419 per share, while the balance was paid in cash, of which $175,000 remains held in escrow for a period of around six months.

These two new Edmonton locations represent an expansion of Delta 9’s already successful presence in Calgary and Grande Prairie. The company said it expects the transaction to be accretive in 2021 and 2022 before synergies, with the acquisition representing “an attractive revenue multiple of around 0.48-time annualized revenue.”

On August 24, Delta 9 Cannabis announced the grand opening of its thirteenth retail store and tenth cannabis store in the Canadian province of Manitoba. The new store in the City of Selkirk’s downtown core at the Arena Plaza Mall, at 379 Main Street, offers a wide range of products including dried cannabis flower, cannabis oil, edibles, drinkables, vape pens, concentrates and more. The firm said it will provide online and click-and-collect services for the Arena Plaza location.

Earlier in August, Delta 9 Cannabis said it has appointed Dr David Kideckel as its executive vice president, Head of Strategy, Corporate Development & Capital Markets, a newly created position to lead the company’s next phase of growth expansion. Kideckel joins Delta 9 Cannabis after nearly 20 years of combined industry and capital markets experience, most recently serving as managing director, senior institutional equity research analyst at ATB Capital Markets.

On August 16, Delta 9 Cannabis reported second-quarter 2021 net revenue of C$16.8 million, a 29% year-over-year increase, as the company continued to boost its bricks-and-mortar retail and online sales efforts.

Delta 9 also recorded an improvement in its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for the period to C$1.2 million from $0.05 million during the same quarter a year earlier. The firm said its three business segments contributed to the success of the quarter.

The firm added it continues to make progress on its goal of having 20 stores open in 2021 across Canada’s Prairie provinces, which it said will be accomplished through strategic acquisition targets as well as a “laser focus” on retail store buildouts at high traffic shopping locations.

In the meantime, Delta 9 Cannabis announced that, on August 6, 2021, it received approval from Health Canada for two expansions at its Winnipeg-based cultivation, processing, and distribution facilities. The approvals allow for an expansion of the company’s licensed perimeter at its Winnipeg-based facilities, expanding the area currently under license from 80,000 square feet to approximately 95,000 square feet, and the licensing of a new 7,500 square foot purpose-built storage and distribution area.

Delta 9 said the expanded licensed perimeter will allow it to improve control systems within its licensed perimeter, improve the operational flow of its operations, and to position the company to better plan for future expansions of its licensed cannabis operations areas. Similarly, the new purpose-built storage and distribution area will allow Delta 9 to improve its product packaging, case-packing, and distribution efficiency.

In June, Delta 9 announced that its strategic partner Oceanic Relief Inc has been granted five new cannabis retail store licenses in the province of Newfoundland and Labrador from The Newfoundland and Labrador Liquor Corporation (NLC).

Oceanic has a Strategic Cooperation Agreement (SCA) with Delta 9 that provides a variety of services relating to cannabis production, the development of standard operating procedures and sanitation programs, and marketing services to develop the Oceanic brand and other services supporting the acquisition of its Health Canada license.

Delta 9 also owns a 5% stake in Oceanic’s production facility operations, existing retail store, and retail store expansion plans, as well as a 20-year supply agreement with Oceanic and the Government of Newfoundland and Labrador.

Inflection points:

  • Further Delta 9 Cannabis Stores opening
  • Expansion of Grow Pod third-party facilities
  • D-Pod progress for coronavirus

What the boss says:

In a statement accompanying the company’s 2Q results, Delta 9 Cannabis CEO John Arbuthnot outlined the firm’s growth blueprint.

“I am very proud of our results this quarter, with record top-line revenues and our seventh consecutive quarter of positive Adjusted EBITDA. We will continue to advance our bricks and mortar and online retail business strategy,” said Arbuthnot.

“We will add new micro cultivation partners with strategic cooperation agreements that provide for a variety of services and expand our turn-key Grow Pod sales into the US market,” he added.

Contact the author Uttara Choudhury at uttara@proactiveinvestors.com

Follow her on Twitter: @UttaraProactive

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