For many, Greengro Technologies Inc (OTCMKTS:GRNH) is one of the so called old guard of marijuana stocks. The company ran up and logged close to 40X gains on the 2014 rally, and close to 10X gains again in the first/second quarter crossover rally of this year. It's a favorite among day traders, with what amounts to a low float when compared to some of its peers, a high insider interest, but great liquidity.The company is setting up to rally again ahead of November 8, and we think it's one of the most solid picks on offer for an investor looking to pick up an exposure to the industry's potential, but also looking to limit downside as things taper off on the other side of the excitement.For those who have not yet come across this one, the company has traditionally designed and sold what are called vertical cultivation systems for plant growing. These systems are essentially boxes (although they can be much larger than a box – some are full rooms) filled with equipment required to grow specific types of what the company rather vaguely refers to as green, leafy plants. The inference here, of course, is that the boxes will serve the recreational and medical marijuana grower market.That said, Greengro is also active (and has just established a franchise model that solidifies this activity) in agriculture outside of cannabis. The company – under a second business arm that runs parallel to its vertical grow box arm – provides multi-acre greenhouse facilities within which its franchisees can grow (primarily) lettuces.The greenhouses are off the grid, and come fully equipped with Greengro's proprietary growing technology. At capacity, each can produce up to nine million heads of lettuce per year, with an average market rate of $0.75 / unit. The company sets up the facility, fills it with its tech, and the franchisee oversees the growing process.Further, and interestingly, Greengro offers take-off purchase orders that see it absorb up to 100% of the produce grown in the facilities at market rate. In the lettuce space, this is not that interesting, but when applied to the marijuana space, it could be a real game changer.There's going to be a huge increase in demand for grow facilities and finished product over the next half decade. If Greengro can cater to both sides of this market, by first setting up grow facilities and then absorbing and reselling the facility in question's produce, there's a great market making opportunity to be had.As the company put it in a recent update:
If the operation can generate nine million heads of lettuce, the production of a comparable amount of cannabis is expected to be a game changer, not only for the grower but for the thriving local retail market. With loosening legislation, production demands are increasing and like Tier 1, purchase orders accompany this franchise opportunity.
Greengro has set up a separate subsidiary, modeled on its lettuce growing franchise system but designed to target the cannabis growth market, to capture this potential. The subsidiary is called Cannabis Ventures Inc Glass Greenhouse Franchise / Cannabis Sector. The name's not great, but the business model looks sound, and there's no question that there will be market demand ready to absorb its supply.So what's next?Well, the company just announced a $7.5 million franchise deal for one of its lettuce grow houses, which will see it provide a grow house to Ohio-based FoodRaiser Corp. The latter has agreed to raise the funds for the agreement over the next six months, and Greengro aims to start construction and of first quarter 2017. This is a major announcement, and is the kind of catalyst we are looking to as underpinning market valuation and – in turn – providing a degree of support after the cannabis sector gains have run the company through the roof, and other entities start to come back to earth. We're looking for more of these agreements, and ideally one specific to its new cannabis greenhouse operation, as near term value drivers.We will be updating our subscribers as soon as we know more. For the latest updates on GRNH, sign up below!Disclosure: We have no position in GRNH and have not been compensated for this article.
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