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Aleafia Health: A Small-Cap Pot Stock Worth Considering Long Term

Aleafia Health (ALEAF) is a little cannabis company that has legitimate growth potential; something many of its smaller peers, in reality, actually don't.

The major catalysts that could propel the company to the next level is its facilities that are close to being licensed by Health Canada, and its recent acquisition of Emblem Cannabis Corporation, which is giving it more options and results than it was capable of before the deal.

While the company has a lot to do and prove before I would be a believer, it has positioned itself to give it a chance to become a potential growth company with a future.

Latest earnings

In the first quarter the company generated $1.5 million in revenue, up over 1,700 percent from the $0.1 million generated in the same reporting period a year ago.

The company had a net loss of $20.2 million in the quarter, with an adjusted net loss of $7 million after excluding one-time, non-cash payments of $13.2 million associated with the closing of the acquisition of Emblem.

It had $36.8 million in cash on its balance sheet at the end of March 2019, and total assets were at $61 million, including cash.

Licensing getting closer to full approval

Licensing approval for Port Perry Outdoor Grow and Niagara Greenhouse moving along nicely.

The Port Perry Outdoor Grow includes 1.1 million square feet of space, or approximately 26 acres. That's the same area its Port Perry Indoor facility is located. Aleafia said it finished the build-out of the site and on May 3 submitted its evidence package to Health Canada showing it meets all requirements to receive its License Amendment. It is currently under review.

At the Port Perry Outdoor Grow facility it has already been approved for Zone 2, and has 13,000 plants currently growing at that location.

The company also stated it has received a status update back from Health Canada concerning its 160,000 square foot Niagara Greenhouse facility, saying it had passed a high-level review, and so far there were no concerns communicated by Health Canada concerning the facility.

It appears it won't be long before Aleafia receives both licenses, barring some unforeseen issue that needs to be fixed. Either way, I would be surprised if Aleafia doesn't get approved for both licenses soon.

What Else Emblem Cannabis brings to the table

The acquisition of Emblem Cannabis Corporation is a real potential game changer for Aleafia in a number of ways. First, it brings immediate revenue growth to the table, and has already entered into the biggest deal Aleafia has ever made.

It reported that Emblem completed an adult-use cannabis order which is expected to generate sales exceeding $1 million, which has already been sent to a Canadian provincial government for online and physical retail distribution.

Aleafia Health CEO Geoffrey Benic said closing the acquisition of Emblem will accelerate its "global mission of growing, processing and selling high-margin value-added cannabis products by 12 to 18 months.”

Leveraging its growth facilities across Emblem's larger footprint should also boost growth going forward.

On the global level, Emblem adds exposure to the important German market via its joint venture with German pharmaceutical wholesaler and logistics company Acnos Pharma GmbH.

Aleafia now owns 60 percent of the joint venture, which includes access to about 20,000 pharmacies and 110 distribution centers.

Outside of Emblem, Aleafia also has a 10 percent stake in Australian Licensed Producer CannaPacific Pty. Limited.

The company already has received an Import Permit from the Australian Office of Drug Control, and has applied to Health Canada for an export permit.

Emblem also has a top Canadian medical cannabis clinic that has seen 60,000 patients.

Conclusion

If Aleafia successfully obtains its licenses and permits, and executes well in its production facilities once they're operational, it has positioned itself to go through a period of significant growth.

The acquisition of Emblem has really upped the game for Aleafia, and if it manages to leverage the strengths of Emblem efficiently, it should surprise a lot of investors that don't pay much if any attention to the small cannabis company.

There are no real guarantees with Aleafia Health, but among companies of its size or a little larger, it appears to have one of the stronger chances at achieving success. It's definitely worth watching closely.

See Gary Bourgeault's stock picks on TipRanks