Quadron Cannatech (CSE:QCC) Capitalizing on Growth in Cannabis Extraction

Quadron Cannatech (CSE:QCC), a leading provider of turn-key extraction equipment and solutions for authorized cannabis growers, is pleased to have recently announced it has completed the sale of its first full extraction facility, as well as the sale of its fifth BOSS CO2 extraction system. Following the legalization of dried cannabis in Canada this past October, the domestic cannabis industry is expected to undergo a radical transformation, in which extraction and companies like Quadron will play a very large role.

Cannabis extracts are the base ingredient of all cannabis derivative products, which include edibles, vape pens, capsules, topicals, cannabis infused beverages and much more. But to get cannabis oil, it must be extracted from the plant using one of multiple methods, all of which involve complex science, expensive equipment and expert know-how.

In the new legal market, consumers want greater variety, consistency and transparency when it comes to cannabis concentrate products, but to meet that demand growers are faced with a problem: the lack of streamlined, cost-effective extraction systems and methodologies to make those end products. There are currently 149 licensed producers (LPs) in Canada as of February 2019, with only 96 authorized for processing cannabis oil, meaning a large potential customer base.   

Based in Vancouver, British Columbia, Quadron provides extraction and processing solutions (equipment, turn-key extraction lab set-ups, ancillary services) through its three vertically integrated subsidiaries: Soma Labs Scientific, Greenmantle Products and Cybernetic Control Systems to licensed cannabis cultivators. Its objective is to provide growers with a variety of customized, cost-efficient means of converting their dried cannabis stock to higher-margin consumable products, as well as assisting with delivery to the end-user (packaging, labelling, branding etc.)

This is important because even though recreational extracts, edibles and topicals will not be legal in Canada until October 2019, their market share is rapidly growing, while dried cannabis inventories are growing. In fact, at the end of 2018, total inventory of dried cannabis (finished and unfinished) held by cultivators, processors, distributors and retailers stood at 128,321 kg, 17.7 times total sales in the month, up from 108,775 kg in October and 117,659 kg in November. Considering these figures, as more and more LP’s come online and the supply of dried cannabis continues to grow, the ability to convert it to other products will continue to gain in importance. 

Similarly the data on oil sales in Canada illustrates its growing popularity with consumers, both in the medical and non-medical markets. Oil sales in Canada increased from 5,955 kg sold in October, to 7,014 kg in November and 7,127 kg in December. In fact, sales of cannabis oil have nearly matched dried cannabis sales, even though cannabis oil sales are technically restricted to the medical market.

Concentrates carry a number of advantages over dried cannabis, including a longer shelf life and considerably higher margins. Moreover, the consumption data suggests that average consumers prefer concentrates over smoking dried cannabis flower, for a variety of reasons, creating multiple avenues to reach customers via different consumable products.

Quadron began its journey seeking to fulfill a fundamental void in the cannabis industry: the lack of specialized extraction solutions and services for growers, particularly ones that are adapted to the unique circumstances of cultivators, for example, facility location and size; production capacity and desired end product.

To this end, Quadron has specialized in the provision of tailored solutions that include individual machines, mobile extraction equipment and full extraction and processing centres. This allows them to partner with cultivators of all sizes and offer a wide range of products and services at all stages of the extraction process.

To date they have sold 5 of their proprietary BOSS CO2 extraction systems, including the most recent in January 2019 and recently announced the introduction of an ethanol extractor, the BEAST, with an even larger processing capacity.  

In addition, the Company is very excited to close the sale of its first turn-key full extraction lab with Cannaworld Ventures, as announced on January 31, 2019. The facility, to be built in stages and is 38,000 square feet, includes equipment for all the various processes (biomass preparation, filtration, distillation, refrigeration etc.) and illustrates the value Quadron can offer to growers, regardless of the size or make-up of their operation.

Another operation that Quadron hopes to add substantial value to with their equipment is Genetic Properites Inc. (GPI) a private company based in Toronto, applying for a standard (non-cultivation) processing license with Health Canada. GPI owns a free-standing, 25,000 square foot state-of-the-art facility which will house an extraction laboratory using Quadron’s equipment. The facility will be able to process up to 100,000 kg of cannabis per year. Quadron has announced their intention to acquire an aggregate of approximately 33.33% of GPI, in exchange for stock compensation, which would in effect make them an indirect player in the production of cannabis oil.  

In addition to the acquisition, Quadron will be selling GPI extraction equipment worth between $4-6 million to outfit their facility. This compares favorably to, for example, the extraction facility announced by Aphra in June 2018, which, while it would have twice the production capacity, requires $55 million in capital. This helps position GPI, and in effect Quadron upon on the completion of the acquisition, as a low-cost concentrate producer. The extraction business is very young and the science is still developing. Current and hopeful cultivators face significant barriers to entry, a largely unknown market and multiple obstacles to sustaining a profitable operation while maintaining quality, consistency and compliance. Quadron hopes to become a leading provider of solutions for all of these problems and capitalize on the important trends developing in the cannabis industry; the recent developments with the company are illustrative of their ability to execute.

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