The last few months have been rough for the cannabis industry and this is a trend that we have seen play out on a year-over-year basis. Due to the historically weak summer trend, we are not running for the hills and have been closely watching the recent activity.
TransCanna Holdings (TCAN.CN) (TCNAF) has been especially impacted by the weak summer trend and this is an opportunity that we continue to monitor. The company has been highly focused on the California cannabis market and we are favorable on the growth prospects associated with the assets in place.
A California Growth Story to be Watching
California is the largest cannabis market in the world, and we are bullish on the growth prospects associated with TransCanna’s plans for this market. Over the next year, we expect to see the company ramp up operations in California and consider this to be a significant aspect of the story. So far, the management team has proven its ability to execute on the California market and we believe that this bodes well for future growth.
A few months ago, TransCanna’s wholly owned subsidiary, TCM Distribution, Inc., received an recreational cannabis manufacturing permit as well as a recreational cannabis distribution permit from Adelanto, California. This comes several months after TCM sub-leased 10,000 sq. ft. of warehouse space and applied for the permits that it was granted. Going forward, we expect to see a favorable decision as it relates to the permanent recreational manufacturing license and distribution licenses that TransCanna has applied for.
The purpose of the Adelanto facility is two-fold and we are bullish on the growth prospects associated with this. Initially, the facility will be used as one of TransCanna’s southern California satellite facilities for transporting products from its 196,000 sq. ft. vertically integrated, cannabis focused facility. The facility will also allow TransCanna to accommodate the production and packaging of cannabis products and distribute them accordingly through a non-volatility manufacturing license.
Acquisition of GoodFellas is Expected to Support Growth
In June, TransCanna completed the previously announced acquisition of The Goodfellas Group and we expect this acquisition to be accretive to the overall business. GoodFellas specializes in branding, sales and marketing in the cannabis and hemp industries. We are favorable on the potential synergies between the businesses and this is a relationship that we are excited about.
The acquisition also includes two of GoodFellas’ existing proprietary premium cannabis brands, Simple Farms and Daily Cannabis Goods. When looking at the assets under the GoodFellas umbrella, we believe that there are significant revenue generation opportunities and will monitor how TransCanna can further monetize these assets.
GoodFellas also represents third party cannabis brands, including Biovelle (a CBC infused coconut oil), which TransCanna has already announced plans to acquire, and we are favorable on the growth prospects associated with the GoodFellas acquisition. One of the reasons we expect this be a relatively seamless transition is due TransCanna’s plans to bring on the entire sales management team as well as the key players from the GoodFellas team.
There are Significant Potential Synergies Associated with GoodFellas
Although GoodFellas’ has a premium line of products, it has not been able to find third party manufacturing and distribution companies to could provide quality services on a consistent basis and this significantly limited its ability to expand into the majority of the dispensaries in California. TransCanna has been highly focused on increasing production capacity and will be able to help GoodFellas in a variety of capacities. We believe that the TransCanna team will be able to significantly increase GoodFellas’ market penetration across California and this is an asset that we are excited about.
TransCanna has also been highly focused the distribution opportunity in California. This is the largest cannabis market in the world and there is simply not enough distribution in the state. The management team has had its finger on the pulse of the California cannabis market and was been able to quickly identify this need. Recently, TransCanna purchased two additional transportation vehicles and are customizing them in order to be compliant with state regulations. Currently, the company only has one completed transportation vehicles and we believe the additions will be significant.
Through the increased production capacity and the enhanced distribution, we are bullish on the growth prospects associated with the GoodFellas acquisition and this is an opportunity to be excited about. Based on the response from the market, we believe that the growth prospects associated with the acquisition are underappreciated by the street. Going forward, we expect the market the buy into this opportunity as TransCanna continues to execute and drive the story forward.
An Opportunity to be Watching
We believe that TransCanna has several major potential catalysts for growth and find this to be significant as it relates to the current trend. During the last year, the company has raised more than $25 million to support growth and we expect to see the capital get put to work in ways that advance the business.
We believe that one of the biggest potential catalyst will be the granting of state transportation and distribution licenses at either of the company’s facilities. Another potential catalyst for TransCanna relates to the announcement of additional acquisitions. The California company has been able to benefit from being able to use its stock as a currency to make acquisitions and we expect to see additional transactions reported during the back half of the year. Because of this, we consider TransCanna to be a multi-faceted growth opportunity and will monitor how the team continues to execute.
Over the coming months, the name of the game for TransCanna is execution and we are favorable on the management team’s ability to execute. The company is led by a management team that has a proven track record of success in the California market and we find this to be significant. We find this to be of great importance and will continue to monitor how the team is able to advance the fundamental story from here
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