Software Effective Solutions Corp. (OTCMKTS: SFWJ) is a cannabis holding company with 8 subsidiaries under its umbrella. Unfortunately the name of the public company does little to convey what the underlying business is, but that is where the opportunity lies. Medcana makes pharmaceutical grade cannabis that's essentially pre sold into the Australian market. They are operating at the pilot plant level and expect funding to complete the rest of the buildout of their cannabis compound of hybrid greenhouses.
Cannabis investors looking at Medcana should focus on the recently announced supply agreement to Australia, which is expected to generate revenues of $1.2 - $2.4 million annually. Medcanna also announced its first crop will be ready around December of this year and it is slated for export to a Swiss end user. This crop export to Switzerland is essentially a native Colombian variety of Hemp. The Columbian exporter that Medcana partnered with developed this hemp strain that is uniquely suited for this Swiss buyer. It reasons that this Swiss buyer liked the product and wanted much more of it and the only way to meet the demand was for the Columbian exporter to outsource the growth to one of the pharmaceutical grade producers in Columbia like Medcanna.
Vertical Integration
Medcana actually holds an ownership interest in 8 companies. One of the companies they bought was Eko2o S.A.S which is a company that sells agricultural technology solutions which include irrigation control systems, sensors, monitoring systems, and greenhouses. The integration of farming technology is going to dramatically lower the cost of their greenhouse build that when completed is expected to reach the size of 25 acres. The company also bought a US based software monitoring company with a (SaaS) solution for other cannabis growers that include the coveted Seed to Store Tracking among other options.
The company has 7 crop growing companies that hold in total 23 licenses for growing and genetics. They are utilizing hybrid greenhouses that have the best features of enclosed greenhouses and open air growing. Their footprint encompasses over 100 contiguous acres located in Antioquia Valley which is near Medellin Colombia. This location has great soil, 12 hours of light minimum due to its proximity to the equator and 4 growing seasons. It also had access to cheap and experienced labor.
Financial Analysis
Their plan is to extinguish $450,000 of convertible debt and turn it into preferred stock at the end of Q3. Once the company announces the completion, this could act as a catalyst for the stock.
Competition
Medcana’s closest competition is PharmaCielo (OTCMKTS: PCLOF) which also has a grow operation located in Columbia. They currently have 30 acres of open air greenhouses and produce medical grade cannabis. They have a $15 million market cap but have spent close to $130 million to get to this point where they are barely producing at the $1.5 million annual run rate. This is a legacy business formed during the cannabis craze and just never found its footing or niche to be profitable. Flora Growth Corp (NASDAQ: FLGC) also spent close to $135 million since inception to get a $60 million annual run rate. They currently have a clean balance sheet but are struggling to find profitability which is why they are sitting at a $25 million market cap. They believe the turn is upon us as valuations have hit rock bottom compared to its peak.
Booming Pharmaceutical Cannabis Market
The turn in cannabis is coming as revenues continue to climb while the market caps of the cannabis companies remain compressed. The political climate is growing warmer to the thought of legalization and seems to have garnered bipartisan support. The global cannabis market is valued at $3.4 billion in 2023 and expected to grow close to 50% by 2030. The Australian medical cannabis market is valued at $350 million which represents a robust market for Mecanna to gain a sizable foothold.
Investment Summary
The inevitable turn in cannabis is coming and should benefit from favorable market trends as well as a friendly political climate toward legalization. Cannabis as a market has matured. The big continue to consolidate while the small have to work hard to define their niche and work toward generating positive cash flow. While none of these small caps have positive cash flow , SFWJ seems best positioned to get there by focusing on the high margin pharmaceutical grade product line instead of the commoditized casual use market. FLGC has a positive balance sheet, diversified product line, and continues to innovate in the beverage category. For investors the choice is between a high margin player like SFWJ capable of growing organically at an exponential rate or a legacy player like FLGC that finally has its footing in the fastest growing segment of the industry on the cusp of a new renaissance in cannabis.
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Disclosure: Insider Financial and its owners do not have a position in the stocks posted and have posted this article for free without editorial input. A guest contributor wrote this article and solely reflects his opinions.
THIS WEBSITE/NEWSLETTER IS A PUBLICATION OF ONE22 MEDIA, LLC, HEREIN REFERRED TO AS O22. O22’S REPORTS/RELEASES ARE A COMMERCIAL ADVERTISEMENT AND ARE FOR GENERAL INFORMATIONAL PURPOSES ONLY.O22 IS ENGAGED IN THE BUSINESS OF MARKETING AND ADVERTISING COMPANIES FOR MONETARY COMPENSATION. O22 HAS PREVIOUSLY BEEN COMPENSATED A FEE OF FIVE THOUSAND USD BY A THIRD PARTY, SIDEWAYS FREQUENCY, LLC FOR A ONE DAY PROFILE REGARDING FLGC. THIS HAS EXPIRED. WE WERE NOT COMPENSATED FOR THIS ARTICLE THAT MENTIONS FLGC.
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