Last summer, in this publication, we highlighted Canopy Growth as the largest and most diverse licensed Canadian medical marijuana producer. The company has cannabis operations in 11 countries and plans to use to capital from Constellation to make investments outside of Canada.

 

In this issue, we want to highlight two private cannabis companies that will be going public in the coming months. The companies, Magical Butter and Plus Products, have been generating strong revenues and have been able to build strong brands. We find this to be an important aspect as we expect to see a lot of consolidation over the next year.

 

Magical Butter manufactures and sells and cannabis extraction device that can be used by the at home consumer. The company is led by CEO Garyn Angel who has made it onto CNBC Next 25 list of entrepreneurs. Angel is listed alongside people such as Elon Musk, Tim Cook, Jeff Bezos, and more.

 

During the next year, Magical Butter plans to expand into the Canadian market and we are excited by this growth initiative. Since edibles are not legal in Canada, we expect to see strong demand for this product. Magical Butter has strategic relationships with leading Canadian cannabis producers like Canopy Growth and Aurora Cannabis (ACB.TO) (ACBFF), which will help create traction in the Canadian market.

 

We consider Magical Butter to be an acquisition target due to the strong sales and brand recognition. In 2017, the company generated more than $6 million revenue and expects to see strong growth going forward. In 2019, Magical Butter plans to launch an edible product line and we view this as a major growth opportunity. This is a company to keep an eye on ahead of an IPO in early 2019.

 

The California marijuana market is one of the most exciting emerging investment opportunities and we have been closely watching this market. The recreational marijuana market opened on January 1^st and is the world’s largest market. Although the market has been growing quickly, we expect growth to slow after new regulations are put in place. The new regulations require retailers to only sell marijuana products that have been tested by a licensed third party that is registered with the state.

 

While these regulations will have a negative impact on sales, they are better for the consumer which is the most important part of this business. Today, we have issued an update on Plus Products which is a California-based edibles manufacturer and distributor. Last month, we highlighted the edibles company which plans to go public later this year on the Canadian Stock Exchange (CSE).

 

In 2018, Plus has recorded strong revenue numbers and generated more than $4 million in revenue during April. The company has been laser focused on growth and has been focused on distribution, which has been a key driver for the revenue growth.

 

Plus Products has been seeing incredible demand for its gummy product and is focused on increasing production capacity. Earlier this year, the company moved into a new facility and brought in state-of-the-art production equipment in order to accomplish this goal. This is a significant initiative for the edibles company and we are bullish on the growth potential.

 

Earlier this year, Plus Products completed an oversubscribed non-brokered private placement and raised more than $6 million in proceeds. This was a significant raise and it generated a lot of interest. This is a very good thing to see and provides the company with easy access to capital.

 

The recent financing was completed at a valuation of approx. $25 million (pre-money) and we think the continued execution warrants a much higher valuation. When compared to a company like CannaRoyalty, which has a market cap that is above $250 million, Plus trades at 1.7x revenue. This is significant and leaves massive room for upside.

 

We think Plus represents one of the most exciting new opportunities and cannabis investors need to keep an eye on this one. The strong and improving fundamentals, leading management team and attractive valuation make this a company that cannot be missed.