VIVO Cannabis Inc: A Seriously Overlooked and Undervalued Marijuana Stock

VIVO Cannabis Inc: A Seriously Overlooked and Undervalued Marijuana Stock
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VIVO Cannabis Inc: Unjustly Ignored, But for How Long?

VIVO Cannabis Inc (OTCMKTS:VVCIF, CVE:VIVO) is not a name that pops up often around the water coolers. But it should.

A provider of medical marijuana, VIVO Cannabis is an overlooked company that reported record third-quarter results, has an active acquisition strategy, maintains a healthy balance sheet, and shows great long-term growth potential.

Investors who are tired of seeing the same cannabis players hogging the spotlight might want to spark up some interest in VIVO Cannabis Inc.

VIVO Cannabis Inc Overview

Formerly known as ABcann Global Corporation, the company changed its name to VIVO Cannabis Inc in August 2018.

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Headquartered in Napanee, Ontario, Canada, VIVO Cannabis—through its two wholly owned subsidiaries, Canna Farms Limited and ABcann Medicinals Inc.—holds production and sales licenses for cannabis and cannabis oils from Health Canada. (Source: “VIVO Cannabis Corporate Presentation Winter 2019,” VIVO Cannabis Inc, last accessed February 25, 2019.)

VIVO Cannabis Inc has a broad distribution network in Canada for adult-use brands. The company is well capitalized to execute aggressive growth plans and has been accelerating its international focus, with Germany as its primary target.

VIVO also has a seasoned management team and cutting-edge scientific advisors.

VIVO Cannabis Production Capacity

VIVO Cannabis operates an indoor cultivation facility with proprietary plant-growing technology. The company has more than 50,000 kilograms (110,230 pounds) of funded internal capacity.

  • Current: 4,000 kilograms (8,820 pounds)
  • Q2/Q3 2019: 11,000 kilograms (24,250 pounds)
  • 2021–2022: 57,000 kilograms (125,660 pounds)

(Source: Ibid.)

VIVO Cannabis Inc Stock

For the most part, over the last 10 months, VIVO’s share price has been trending downward. It was gaining steam in late summer, but then its price tumbled during the market-wide sell-off in October and took a further dive during the broader market meltdown.

Chart courtesy of StockCharts.com

Since the start of 2019, VIVO stock has given investors reason to be optimistic. It might be down roughly 60% year-over-year, but it’s up roughly 52% year-to-date.

Part of that is a result of record third-quarter results, a strengthened management team, and a new cannabis oil sales license.

VIVO Cannabis Stock Information
Market Cap $218.1 million
52-Week High $1.53
52-Week Low $0.41
Shares Outstanding 291.0 million
Float 180.2 million
50-Day Moving Average $0.70
200-Day Moving Average $0.86

(Source: “VIVO Cannabis Inc. (VVCIF),” Yahoo! Finance, last accessed February 25, 2019.)

VIVO Cannabis Inc’s Acquisitions

VIVO Cannabis is home to a large number of well-known brands targeting unique customer segments, including Fireside, Beacon Medical, Canna Farms, and Lumina.

VIVO acquired Canna Farms in late August 2018 for CA$133.0 million. (Source: “VIVO Cannabis Completes Acquisition of Canna Farms,” VIVO Cannabis Inc, August 31, 2018.)

Located in Hope, British Columbia, Canna Farms is a premium licensed producer of medical cannabis under the Access to Cannabis for Medical Purposes Regulations (ACMPR). It is also the first licensed producer in British Columbia.

For fiscal-year 2017, Canna Farms reported unaudited revenue of $5.8 million and adjusted Earnings before interest, taxes, depreciation, and amortization (EBITDA) of $2.8 million.

For the fiscal year ended June 30, 2018, the company’s revenue was $9.4 million and its EBITDA was $4.3 million.

At the time of the acquisition, VIVO Cannabis had a solid balance sheet of approximately $110.0 million in cash. The new acquisition opened up a significantly larger client base. (Source: Ibid.)

VIVO also acquired Trauma Healing Centers (THC), a leading east-coast chain of medical cannabis clinics. THC was merged with Harvest Medicine and together they operate a network of specialty medical cannabis clinics in four Canadian provinces, caring for a total of 22,000 patients. (Source: “VIVO Cannabis Reports Record Revenue for Q3 2018,” VIVO Cannabis Inc, November 30, 2018.)

Europe Is Primary Focus of Global Expansion

VIVO Cannabis has been rapidly expanding its production capacity, pursuing partnerships, and pursuing domestic and international product development opportunities. Outside of Canada, VIVO Cannabis is focusing its efforts on Australia and Germany.

Germany is expected to harvest its first crop of medical marijuana in 2020. The largest economy in Europe has, until now, relied on imports from Canada and the Netherlands since it legalized medical marijuana in March 2017.

VIVO Cannabis is hoping that its entry into Germany will open up that market and be a gateway to the rest of Europe.

In Germany, medical cannabis is sold in pharmacies and the costs are covered by the country’s universal drug program. There are currently around 30,000 registered patients, a number that is expected to grow significantly in the coming years.

By 2028, the European medical cannabis market is forecast to hit €55.0 billion. (Source: “Europe – The World’s Largest Cannabis Market,” The Green Fund, December 6, 2018.)

VIVO Cannabis Inc Completes First Seasonal Airhouse

Last September, VIVO Cannabis announced that it had completed the first of four seasonal “Airhouses.”

Airhouses, an alternative to greenhouses, are widely used in commercial agricultural, substituting glass for high-quality vinyl. They are much more cost-efficient than greenhouses, and are safe, effective, and environmentally friendly.

Each VIVO Airhouse represents over 17,000 square feet of cultivation and is expected to yield two harvests annually. (Source: “VIVO Completes First New Seasonal Greenhouse,” VIVO Cannabis Inc, September 26, 2018.)

CEO Barry Fishman said the following:

Although these Airhouses are used to cultivate cannabis in the US, VIVO is the first licensed producer in Canada to utilize this technology. We expect these Airhouses to provide us cannabis needed to satisfy the increasing demand for extracted product…By the end of 2018, our total annual capacity in both BC and Ontario is expected to exceed 12,000 kilograms.

(Source: Ibid.)

VIVO Cannabis Inc Reports Record Third-Quarter Results

On November 30, 2018, VIVO Cannabis announced that it had achieved record financial results in its third quarter.

Third-quarter revenue was $2.3 million, a significant increase over the $200,000 recorded in the same prior-year period. (Source: “VIVO Cannabis Reports Record Revenue for Q3 2018,” op cit.)

VIVO Cannabis reported a third-quarter net loss of $9.1 million, which was a result of increased investment to drive future growth.

As of September 30, 2018, the company had $100.0 million in cash, cash equivalents and short-term investments; total assets of $285.0 million; and total liabilities of $61.0 million.

Fishman said:

The acquisition of Canna Farms represents a transformational transaction in the evolution of VIVO that has led to a record quarter of $2.3 million revenue, with $4.4 million of pro forma revenue for the full quarter. Not only has this acquisition provided a significant revenue impact, it has tripled our production capacity, expanded our product range and substantially increased our medical patient base.

(Source: Ibid.)

VIVO Cannabis Inc Third-Quarter Highlights:

  • Completion of the acquisition of Canna Farms, resulting in pro-forma Q3 revenue of $4.4 million.
  • Total medical cannabis patients of 18,000 at the end of Q3 2018, compared to 2,000 at the end of Q2 2018.
  • Entry into adult-use supply agreements with British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, and Yukon.
  • Canna Farms achieved one of the best order fulfillment rates in the industry.
  • Beacon Medical product was introduced to the Australian market.
  • Increased exposure from the upgrading of the company’s common shares to the OTCQX Best Market in the United States.
  • Introduction of the Lumina and Fireside adult-use cannabis brands.

(Source: “VIVO Cannabis Corporate Presentation Winter 2019,” op cit.)

Highlights Subsequent to the Third Quarter:

  • Acquired Trauma Healing Centers.
  • Strategic equity investments in Canadian cannabis retailers National Access Cannabis Corp (OTCMKTS:NACNF, CVE:META) and Westleaf Inc. (OTCMKTS:WSLFF, CVE:WL).
  • Internal expansion in British Columbia and Ontario and through certified third-party partner supply agreements.
  • ABcann Medicinals Inc. received its cannabis oil sales licence from Health Canada.

(Source: Ibid.)

2022 Revenue Projections

For full-year 2018, it appears that VIVO Cannabis is on track to report revenue of around $9.0 million.

By 2022, the company is forecasting full-year revenue of $500.0 million.

Of that total, 50% ($250.0 million) is expected to come from international medical marijuana sales, 30% ($150.0 million) from Canadian medical marijuana sales, and 20% ($100.0 million) from adult-use recreational cannabis sales. (Source: “VIVO Cannabis Corporate Presentation Winter 2019,” op cit.)

Analyst Take

VIVO Cannabis Inc’s share price took a hit in 2018, but thanks to investor optimism, record financial results, and strong fundamentals, the company’s share price is on the rebound. There are a lot of reasons to like VIVO Cannabis Inc in 2019.

VIVO Cannabis is an excellent marijuana company with tremendous short- and long-term growth potential. VIVO stock is trading at valuations significantly lower than its much larger peers.