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Delta 9 Cannabis Inc

Delta 9 Cannabis Inc, (“The Company”) was founded in 2012 and licensed by Health Canada in December 2013, making it one of Canada’s oldest cannabis companies. Since the Company went public in November 2017 it has raised $71.65 Million ($18.1 Million in debt, $14.3 Million in Convertible Debt and $39.25 Million in equity) to fund expansion opportunities. Recently the Company up-listed to the TSX main board on Sept 3, 2019 with a new symbol TSX: DN.

Delta 9 is one of Canada’s only vertically integrated cannabis companies with licensed production, processing, distribution, and retail operations. The Company currently employs approximately 300 full time employees. Delta 9 operates in 185,000 square feet on a 47 Acre site in Winnipeg, Manitoba and currently has 80,000 square feet of Health Canada licensed facilities.

Production Method

All of Delta 9’s cannabis production and processing activities are based in retrofitted shipping containers called Delta 9 Grow Pods. Delta 9 holds Canadian and US Patents on its grow technology. The Grow Pods provide a grow platform which is modular, scalable, and stackable, allowing the company to grow vertically on multiple floors.

The Grow Pods and hydroponic grow systems provide a high level of control over the grow environment meaning high quality products. Each Grow Pod has a full retrofit cost of only $25,000 (less than $100/ square foot) and will produce over 32,000 grams of dried cannabis per year (approximately $160,000/ year at wholesale). The modular nature of the Grow Pods helps prevent the risk of spread of any contamination within the facility, minimizing the risk of crop loss.

Production capacity

  • Current Capacity is now 297 grow pods offering 95,040 Sq. Ft.
  • Annual Cannabis capacity is 8,325 Kg/yr
  • Delta 9 has plans to add another 129 grow pods to our existing warehouse that will increase capacity to 11,975 Kg/yr
  • The estimated capital cost of $7 million will be covered by cash on hand.

Cannabis 2.0

Delta 9 is licensed for Oils production, where it acquires bulk pre-formulated oils from other licensed producers, and performs bottling and labelling activities. Westleaf White Labelling Agreement – to purchase cannabis derivative products, with a minimum purchase order of $4 million and an option to increase the amount to $16 million.

B2B

Delta 9 has developed several value-added B2B to diversify revenue streams; 70 different genetics seeds and Health Canada recently provided an export permit to sell genetics to Australia and sell seeds to producers. Selling Delta 9 Grow Pods and providing consulting to new and pre-licensed producers for Health Canada licensing and compliance. At the end of Q3, 2019, Revenue from B2B was over $2 million. Management will continue to grow this segment over 2019.

Wholesale supply agreements

Delta 9 has licenses to sell products in Manitoba, Saskatchewan, Alberta and BC.

  • For example, Delta 9 has contracts to sell:
    • 2,300 Kg/ yr to the Province of Manitoba
    • 1,000/ Kg/yr Auxly Cannabis Group

 Retail

Another driver of growth for the Company will be retail store openings.

Management believes that vertical integration into retail sales will carry a number of benefits including;

  • control over a direct to consumer sales force,
  • control over in-store marketing and branding components,
  • capturing retail sales margins.
  • To date the Company has been granted 4 licenses for retail stores in Manitoba;
    • Vital – 3,500 square foot superstore - Opened October 17, 2018
    • Osborne Village – 3,500 square foot character store – Opened Q1, 2019
    • Brandon – 4,500 square foot superstore – Open Q2, 2019
    • Thompson – 2,500 square foot superstore – Opened in Q3, 2019

Expansion Opportunities – Management is currently exploring growth opportunities in retail in Manitoba, Saskatchewan, Alberta, British Colombia, and Ontario.
Delta 9 acquired 2 additional retail store in Alberta that will be in operation in Q1, 2020.

Financial Highlights for Q3, 2019 – update for Q3

  • Operating revenues of $6.7 million for the third quarter of 2019, up 432%, from $1,251,213 for the same quarter last year.
  • Adjusted EBITDA was $(849,760) compared to $(2,551,710) in Q3, 2018.
  • Gross profit of $2.0 million for the third quarter of 2019, up 551%, from $312,480 for the same quarter last year.
  • Gross profit margin was 31% for Q3, 2019.

Financial Highlights for the nine months of 2019 – Update for YTD

  • Record operating revenues of $21.2 million, up 821%, from $2.3 million for the same period last year.
  • Gross profit2 of $6.8 million, up 799%, from $756,644 for the same period last year.
  • Gross profit margin was 32% for the nine months of 2019.

Newss Release

  • Acquires 2 retail stores in Alberta.

Operational Highlights

  • On May 20, 2019, the Company received approval from Health Canada for an additional 48 of its proprietary “Grow Pods”, bringing its total number of Grow Pods approved by Health Canada to 202.
  • The additional 48 Grow Pods will increase production by 1,150 kilograms per year of dried cannabis flower production, bringing the Company’s overall anticipated production capacity to 5,350 kilograms of dried cannabis flower per year.
  • There are now a total of 297 Grow Pods within its Winnipeg production facility (the “Delta Facility”).
  • The Company is continuing with its planned Phase II expansion of the Delta Facility to increase cannabis production to 16,500 kilograms per year.

Proven producer

Delta 9 was founded in 2012 and uses low-risk “Grow Pods” to cultivate indoor cannabis in retrofitted shipping containers.

  • Operates in 185,000 sq. ft. on a 47 Acre site in Winnipeg
  • Grow Pods provide:
  • premium product/pricing (~20%),
  • low-cost production (~$1.05/gram)
  • reduced risk of crop failure.
  • Operations in Manitoba provide inexpensive labour, power and warehouse space.

 Production and product development ramp up

  • Current capacity is 5,350 kg/year with 202 grow pods in production
  • Another 95 grow pods in place waiting approval from Health Canada increases capacity to 7,864 Kg
  • Cannabis 2.0 allows Delta 9 to sell high margin Edibles and Vape pen products this December, 2019

 Vertical integration

  • Delta 9 has licences to sell cannabis wholesale in Manitoba, Saskatchewan, Alberta and BC
  • Delta 9 has 6 retail cannabis stores in Manitoba and Alberta
  • B2B – selling grow pods to micro producers with a 50% gross margin

Valuation

  • Shares currently trade under the symbol TSX: DN and OTCQX:VRNDF and warrants are listed under DN.WT and DN.WT.A
  • Stock trades at a significant discount (~80%) to Canadian LP peer average.

Contact Information

Contact Name:
Ian Chadsey MBA CPA
VP IR & Corporate Affairs
Phone:
+1 204-898-7722

 

MANAGEMENT TEAM

Delta 9 is one of Canada’s only vertically integrated cannabis companies with licensed production, processing, distribution, and retail operations. The Company currently employs approximately 300 full time employees.

Bill Arbuthnot

Bill Arbuthnot

Co-Founder, President, Chairman
John Arbuthnot

John Arbuthnot

Co-Founder, CEO, Director
Jim Lawson

Jim Lawson

CFO
Matthew Sodomsky

Matthew Sodomsky

CTO
Al Roney

Al Roney

VP of Retail
Michael Onizak

Michael Onizak

VP of Supply Chain
Ian Chadsey

Ian Chadsey

VP Corporate Affaires
Derek Reimer

Derek Reimer

VP Compliance
Jen Serek

Jen Serek

VP HR
Mark Jonker

Mark Jonker

VP Operations
Kelsey Friesen

Kelsey Friesen

Director of pod sales

Alternative Stock Symbols:
TSX: DN
OTCQX: VRNDF

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