Biome Grow one of the least risky small-cap cannabis stocks, boss tells investors

Canadian cannabis firm Biome Grow Corp may be relatively new on the scene but it has landed deals that only some of the biggest companies in the nation have secured.   

The group, which was founded about two years ago and floated in Canada and Frankfurt in October this year, recently inked the largest cannabis supply agreement to date in Atlantic Canada.

Its subsidiary, Back Home Medical Cannabis Corp, agreed on a 24,000-kilogram three-year production and supply agreement with the Province of Newfoundland and Labrador, marking one of the top-five major deals of its kind in the Canadian cannabis market by quantity.

Biome expects that the supply deal will bring in nearly $100mln in revenue a year from the beginning of 2020.

Back Homes is building a new $60mln production facility, which will operate from Barachois Brook on the west coast of Newfoundland. The facility will be built in multiple phases with an initial 18,000 square feet (sq ft) and expanded to a further 150,000 sq ft in 2019.

The company has committed to supplying up to 4,000 kg in the first year of its three-year contract, with 10,000 kg annually in the following two years from across its portfolio of production assets.

The deal is significant considering the company is up against some increasingly tough competition in Canada with more players entering the market following the government’s approval of recreational marijuana use.

“A company of our size is basically getting contracts that only biggest companies in the world get, which makes us unusual,” chief executive Khurram Malik said.

Further deals on the horizon

Malik said the market can expect to see similar deals announced in the coming months. The group is also looking to enter new markets outside Canada within the next two to three years.

“At the end of the day, Canada only has 36 million people. It has a large land mass but a tiny population and there are enough providers going after that tiny pool of customers,” Malik said.

Malik declined to name the countries Biome plans to target but said it would look at areas other companies are ignoring, including jurisdictions that are considering legalising medicinal and/or recreational marijuana. The aim is to be the first in the door, he said.

For now, the company is focused on Canada through its five subsidiaries.

Good progress at Canadian subsidiaries

Aside from Back Home, Biome’s brands include Highland Grow Inc, Great Lakes Cannabis, Red Sands Craft Cannabis Co and Weed Virtual Retail (VR).

Highland Grow, a cannabis grower in Novia Scotia, in November became the group’s first business to receive a license in Canada to sell to other businesses.

Biome expects to receive an additional licence that will allow it to sell directly to consumers in the near future.

Its other two cannabis growers – Great Lakes, based in Norwich, Ontario, and Back Home – are in the late stages of a cultivation license application in Canada.

Supporting its cannabis producing businesses are Red Sands and Weed VR.

Red Sands, based in Prince Edward Island, takes raw cannabis from Biome’s growers to develop into products like oils, creams and digestible goods to sell to the rest of Canada.

Weed VR is a virtual reality platform that has a library of 3D images of different cannabis strains that are designed to educate and inform purchases of medicinal and recreational marijuana.

‘Least risky’ small-cap cannabis stock

With a diversified portfolio, a team experienced in investments and cannabis, and a strategy of targeting areas where there is unmet demand, Malik believes the company is well-placed to handle the rising competition in Canada. 

“The market is going to get increasingly competitive but we are filling holes and dominating sectors other people are ignoring,” he said.

He added: “What we are doing a bit differently is we’re signing purchase orders and commitments from customers – whether they are governments or individuals, in Canada and elsewhere –before we are finished construction (of our facilities),” he said.

Malik said that means Biome is “probably the least risky” small-cap cannabis stocks in Canada.

“The big guys that have a multibillion-dollar market caps are going to have a nice run over the next two years, but we think they are a little bit pricey so if investors are looking for better value and want to get into the next wave of companies… we are the least risky,” he said.

Story by ProactiveInvestors