Delta 9 Cannabis Inc.

Improved Business Prospects from Recent Developments: Delta 9 Cannabis Inc. (TSX: DN) is a vertically integrated cannabis company focusing on selling of cannabis products through its wholesale and retail sales channels. The Company sells its cannabis grow pods to other businesses and is a licensed producer of medical and recreational cannabis, with production facilities across Winnipeg, Manitoba, Canada.

Key Operating Highlights:

• DN received ~CAD 11.8 million funding through the issuance of unsecured convertible debenture units with an interest rate of 8.5% per year for a three-year term.
• Delta 9 acquired two Alberta retail cannabis stores during FY19, which led to a total store presence of six stores in Western Canada. Further, the Company seek to acquire twelve retail stores over the next 24 months to strengthen its retail presence.
• The Company received Health Canada approval for the Phase II expansion of its production facility into service wherein, DN will be cultivating Grow Pods and is expected to grow an addition of ~3,650 kilograms dried cannabis flower per year taking the total production to 11,975 kilograms per year.

FY19 Financial Highlights: DN reported a stellar set of numbers, reporting tremendous growth from all segments. Net revenue stood CAD 31.8 million, considerably higher than CAD 7.57 million in FY18. The Company reported lower loss from operations at CAD 2.2 million, as compared to CAD 8.5 million in FY18, thanks to higher income, while the increased cost of sales remained a drag. The Company reported a Gain on disposal of Westleaf project investment amounting to CAD 17.4 million. For FY19, the Company’s capital expenditure stood at CAD 14.03 million. The Company exited the year with a cash balance of CAD 5.85 million.

FY19 Financial Highlights (Source: Company Reports)

Stock Recommendation: The Stock of DN corrected ~69% in the last one year and currently trading near the lower band of its 52-weeks range of CAD 1.55 and CAD 0.34. The Company generates its revenue from the sale of cannabis genetics products, sales of Grow Pods, and through licensing and consulting services provided to other licensed and pre-licensed cannabis companies. The Company has its proprietary Grow Pod platform and is the production facilities. The company operates in a low-cost cultivation model and reported total cost per gram of CAD 1.04 in Q4FY19, as compared to CAD 1.21 in Q3FY19. The sharp decline in stock price and expected increase in production presents a good buying opportunity. The stock is trading at a forward EV/Sales multiple of 1.1x against an industry average of 3.1x. Hence, we recommend a ‘Speculative Buy’ on the stock at the closing market price of CAD 0.47 as on May 04, 2020.

DN One-Year Daily Price Chart (Source: Thomson Reuters)

ProMIS Neurosciences Inc.

Improved Prospects from Clinical Trials: ProMIS Neurosciences Inc. (TSX: PMN) is a development stage biotechnology company. PMN is focused on the development of antibody therapeutics that selectively targets toxic oligomers associated in the development of neurodegenerative diseases.

FY19 Financial Highlights: For the period ended December 31, 2020, PMN reported a net loss of CAD 7.40 million, lower than CAD 10.167 million in FY18. The Company reported lower research & development expense of CAD 4.73 million, as compared to CAD 7.41 million in FY18, following a lower general and administrative expense. The y-o-y decline in R&D expenses was due to the lower patent expenses. Meanwhile, lower share-based compensation and a decline in the spending on external contract research organizations for internal programs further drove R&D expenses down. However, the rise in contracted research salaries and associated costs coupled with the increase in external consulting expenses remained a drag. The Company reported total assets of CAD 2.07 million, lower than CAD 2.96 million in FY18. The Company exited the quarter with cash and cash equivalents of CAD 1.661 million.

FY19 Income Statement Highlights (Source: Company Reports)

Stock Recommendation: The stock corrected ~35% in the last nine months and is currently trading near the lower band of its 52-weeks trading range of CAD 0.29 and CAD 0.11. The Company is creating medicines, used for treating diseases like Alzheimer, ALS, Parkinson and other diseases. As per the market is concerned, the scope is huge due to the lack of proper therapies and medication of the above diseases. Any positive outcome can provide a massive business prospect to the Company. ProMIS’ patented platform helps in delivering antibodies which are key catalysts for the development of therapeutics for neurodegenerative diseases. Further, the Company has collaborated with Dr. Hans Frykman and his team  and is indulging its platform for COVID-19 research to identify unique binding sites on the protein halo of the virus, which can be used for accurate testing of virus-reactive antibodies in the blood. We believe, the Company is uniquely placed and any positive results from the clinical trial would resulting in higher investor’s interest in the stock. The stock PMN is trading above its 20-days simple moving average (SMA) of CAD 0.153, while the price appreciated ~19% in the last one month. Hence, we recommend a ‘Speculative Buy’ on the stock at the closing price of CAD 0.155 per share, down 3.125% as on May 04, 2020.

PMN One-Year Daily Price Chart (Source: Thomson Reuters)

Western Resources Corp.

Innovative Technology to Drive Growth: Western Resources Corp. (TSX: WRX) is a mining and exploration company focused on developing its Milestone potash project. WRX operates through two segments, real estate and mineral properties.

On April 28, 2020, the company announced that it has started its Hot Mining operations at its Milestone Phase I Plant. The company further stated that the process plant is scheduled to be completed and ready for harvesting of potash by the end of this year.

Q1FY20 Financial Highlights: WRX declared its quarterly results, wherein the Company reported a loss before other income of CAD 0.54 million, improved from the loss of CAD 0.91 million in pcp. The improvement was driven by a significant decline in consulting fees, legal fees and rent expenses. Lower Salaries, wages &benefits and travel expense also contributed to the increase, which was partially offset by the inclusion of Share-based payments and higher depreciation. Net loss stood higher at CAD 0.36 million, from CAD 0.16 million due to inclusion of interest income of CAD 0.68 million in Q1FY19. Total assets stood higher at CAD 227.31 million, improved from CAD 197.93 million in Q1FY19. The Company exited the quarter with Cash and Term deposits, including restricted cash of CAD 1.08 million and CAD 4.56 million, respectively.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Stock Recommendation: The stock soared ~91% in the last one year and yet it is currently trading near the lower band of its 52-weeks trading range of CAD 0.56 and CAD 0.11. The commencement of Hot Mining is a significant milestone for Project construction, as it signifies the feasibility of the new technology, and is expected to add value addition for the business. The process further provides enhanced horizontal solution while building an inventory of potash in the crystallization pond. By design, each cavern is expected to produce about 4,000 tonnes of KCl per month into the crystal pond. The above technology is expected to disrupt the Solution Mining Potash industry, and successful implementation would provide an inevitable choice for several potash producers. However, the company is yet to report revenues and is still developing its potash project, which is why we recommend a ‘Watch’ rating in the stock at the closing market price of May 04, 2020.

WRX One-Year Daily Price Chart (Source: Thomson Reuters)

Disclaimer

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