Cultivation System that Enhances Opportunities in the Cannabis Industry—Delta 9
by Silvia Muñoz-Campo
April 27, 2021 10:05 am
Many of the Canadian cannabis companies are focused on expanding into the US cannabis market in 2021. The one remaining obstacle is that if they grow cannabis or own retail stores in Canada, they are prohibited from entering the US market until cannabis is legal at the federal level.
Without federal legalization and safe banking in the US market, however, navigating through the hurdles of the cannabis space is limited and can add many extra costs to a company’s capital structure.
For many Canadian cannabis companies, M&As activities are one of the only ways to enter the US market place. There are many cannabis companies that either grow cannabis or own retail stores but there are very few picks and shovels companies that supply the equipment to grow cannabis. There are only a small few that actually sell a turn key growing platform like Delta 9’s Grow Pods. For example, there was one US company that did an IPO in February 2021 and raised $150 million. They now have an attractive market Cap of $240 million.
Delta 9 Cannabis Inc. (OTCQX:DLTNF) (TSX:DN), a Canadian-based vertically-integrated cannabis company, was one of the first LPs licensed in Canada. In addition to cultivation, wholesale sales cross Canada and eleven retail stores and the company has sold “Turn Key Grow Pod Platforms” into Michigan, Maine and Arizona. The reason they can sell their Grow Pods in the US is that they can grow any crop.
Here’s what you need to know.
Delta 9 Growing Platforms – Grow Pods
Delta 9 is changing the way cannabis is grown and sold. The company’s grow pods are premium cannabis growing platforms with hardware and software solutions for the indoor agriculture marketplace.
Grow pods are 40-foot cube shipping containers retrofitted to be able to cultivate cannabis hydroponically and provide a high level of control over the crop. These pods are modular, scalable, stackable and designed to mitigate the risk of significant crop loss.
The company’s ultimate goal is to continue to grow premium cannabis products more efficiently and productively, all at the lowest cost. In fact, Delta 9’s production cost per gram is estimated at $0.67.
The Grow Pod business division allows the company to expand into the U.S. cannabis market as the industry begins to develop there. The Grow Pod division provides the company with additional revenues and high margins at 65%, as well as valuable partnerships with licensed cannabis producers with supply agreements.
The Advantages of Grow Pods
With a low conversion and installation cost, Delta 9 can expand for less than $100 per square foot making incremental expansion very economical.
Grow Pods are constructed on-site using retrofitted shipping containers installed with customized wall panels, electrical, lighting, HVAC and security. They are modular, scalable and stackable.
Delta 9 cultivation system ensures consistently high yields and quality. In fact, production in small modular areas helps prevent the risk of contamination and disease and compartmentalizes the risk of crop loss.
Delta 9’s Grow Pod division contributed over $8 million in revenue over the last 4 quarters and the company expects to continue to expand its Grow Pod division into emerging markets in the U.S. in 2021.
Summary of 2020 year-end results:
Delta 9 recorded a 64 percent increase in revenue in 2020 to $52 million, increased its workforce by 50 percent to about 300 people and generated $3.8 million of operating profit.
And this was done while dealing with all of the complicated adjustments an essential service was required to undertake during the pandemic.
In addition to the dramatic revenue growth, the company doubled its retail revenue and number of stores, continued to grow its wholesale and grow pod business — Delta 9’s proprietary shipping container cultivation systems were sold to operations in Maine and Michigan last year — and the company is in very good shape to continue to grow.
“There are lots of positive takeaways,” Arbuthnot said. “It’s a major milestone for any company to produce positive cash flow and positive EBITDA.”
Considering that many others in the industry were shedding assets, shuttering facilities and laying off thousands of workers, it is a major accomplishment that Delta 9 is now one of only a few Canadian cannabis companies that are profitable.