Biome Grow Signs Massive Provincial Supply Agreement
December 10th, 2018
Exclusive, News, Top Story
Canada’s cannabis industry has charged forward full-steam following the legalization of recreational cannabis in October. While there was an initial flurry in provincial agreements, many licensed producers experienced a shortfall in their supply commitments. These dynamics encouraged many provinces to seek additional suppliers to help meet growing customer demand as Health Canada works through its backlog of applications.
Biome Grow Inc. (CSE: BIO) (FSE: 60TA) is a diversified licensed producer with five subsidiaries located in strategic markets throughout the country. In early November, the company announced a landmark provincial supply agreement that could generate upwards of $100 million in annual revenue over the coming years in Newfoundland and Labrador’s nascent market.
In this article, we will take a look at the new supply agreement and why investors may want to take a closer look at the stock over the coming quarters.
New Supply Agreement
Biome Grow recently announced that its subsidiary, Back Home Medical Cannabis Corporation, entered into a three-year 24,000 kg production and supply agreement with the Province of Newfoundland and Labrador. Management expects that the agreement will generate close to $100 million in annual revenue beginning in 2020 at wholesale prices, while expenses could total around $50 million per year at those production levels.
The transaction is the single largest cannabis supply agreement in Atlantic Canada and one of the top five largest deals across the country by quantity. Under the terms of the agreement, Back Home is expected to produce Newfoundland and Labrador-grown cannabis in 2019 and operate a production facility in the province for a minimum of 20 years. It will supply up to 4,000 kg in the first year and 10,000 kg annually in the following two years.
In addition to the supply commitments, the company is eligible to recover up to $52 million through reduced remittances to the Newfoundland and Labrador Liquor Corporation. The company could recoup eligible construction costs through reduced remittances in exchange for new jobs and the construction of the new facility in the province. These reduced remittances could provide a boost to the company’s bottom line.
Biome Grow’s Back Home subsidiary is just one of five companies under its corporate umbrella. Great Lakes Cannabis is in the late stages of an ACMPR license with a presence in Ontario; Highland Grow is an existing licensed producer in Nova Scotia; Red Sands Craft Cannabis is located in Prince Edwards Island; and, Weed Virtual Retail is developing a new virtual reality technology platform focused on medical and recreational cannabis markets.
In addition to these Canadian operations, the company is actively working to expand its international footprint to further diversify its revenue. These activities could include exporting cannabis to key international markets around the world or acquiring companies in these markets to grow its operational footprint. The announcements surrounding these expansions could become a catalyst for the stock over the coming quarters.
The company recently listed its stock on the Frankfurt Stock Exchange under the symbol “6OTA” to further its goal of becoming a leader in the international medical cannabis markets. The FSE is one of the world’s largest securities exchanges with ~90 percent share turnover, while about half of its participants are from countries other than Germany. The move could open the door to investment from European and other nearby investors.
Biome Grow Inc. (CSE: BIO) represents a compelling investment opportunity in the Canadian and global cannabis industry. With its new provincial supply agreement in place, the company is well positioned to significantly grow its revenue in 2020 and beyond, while simultaneously advancing projects across its other four subsidiaries.
For more information, visit the company’s website at www.biomegrow.com.
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