Launch of Home Delivery Service and Improved Business Prospects to Enhance the Future outlook: Aleafia Health Inc. (TSX: ALEF) is an Ontario, Canada-based, vertically integrated and federally licensed cannabis company, which offers cannabis health and wellness services and products in Canada and international markets. The group operates education centres, medical clinics, and production facilities for the production and sale of cannabis and other related products.

Recent Update: On 26^th March 2020, the group announced about the launch of its last-mile medical cannabis home delivery service, which will deliver the medical cannabis products to the patients next-day, on orders made across Ontario’s GGHR (Greater Golden Horseshoe Region).

Recent Highlights and Business Outlook:

• The company received a Health Canada Cultivation License for its Niagara Production Facility, situated at Grimsby, Ontario. Through this facility, the company expect to obtain sustainable inventory supply for its health and wellness sales channels. The facility has an automated, highly advanced, moving container bench system, which will support in reducing both costs and execution risk. 

• In FY20, the group has successfully completed the three significant production facility expansions, the Niagara Facility, the Port Perry Facility’s outdoor grow site, and the Paris Phase II expansion.

• Looking ahead, Aleafia Health anticipates modest increases in quarterly SG&A (sales, general & administrative) expenses over the course of 2020. 

FY19 Financial Highlights for the Period Ended 31^st December 2019

FY19 Income Statement Highlights (Source: Company Reports)

ALEF reported its full-year results, wherein the business reported Net revenue of CAD 16.35 million, as compared to CAD 3.33 million in FY18, driven by the higher sale of cannabis products. Gross profit stood at CAD 20.78 million, as compared to CAD 2.79 million in FY18. Operating Loss stood at CAD 29.20 million, as compared to a loss of CAD 19.81 million in the previous period. The business reported a cash balance of CAD 41.25 million as on 31^st December 2019.

Stock Recommendation: The stock of ALEF is quoting at CAD 0.405 with a market capitalization of 109.84 million. The stock has generated a negative return of 23.58% and 30.17% in the last one month and three months, respectively while the share has generated a positive return of 19.11% in the last one week. The business will provide sustainable value to shareholder through innovation and launch of new products. The company has launched home delivery services, which will be transitioned to conducting 100% of patient consultations remotely through telemedicine, with the aim of not missing a single patient appointment. The recent home delivery service is likely to mitigate the risk which the group is facing post coronavirus outbreak for the third-party parcel delivery services. A downturn in the economic cycle and a change in investor sentiment could reduce the demand for its products. The company is actively looking forward to investment opportunities for growth in its core businesses. However, cannabis happens to be a new industry, and the success of the business is correlated with the product acceptability and approval of the product by different countries. Therefore, based on the above rationale, we have given a “Speculative Buy” recommendation at the closing price of CAD 0.405 (as on 27th March 2020).

ALEF Daily Technical Chart (Source: Thomson Reuters)

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