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On November 4, 2019, Westleaf (WL.V) announced that Westleaf Labs has received an initial “white label” order from Delta 9 for a three-month supply of vape pens and cartridges, representing anticipated revenue of  about $740,000, “starting as early as January 2020”.

The deal carries a minimum total commitment of $4 million – about 10% of WL’s current market cap.

White-labeling is less sexy than branding but potentially more profitable – due to single bulk orders that come without the expense and operational drag of marketing and distribution.

White label products are sold by retailers with their own branding and logo but the products themselves are manufactured by a 3rd party.  In this scenario, the manufacturer uses the branding requested by the buyer, instead of its own.

“Westleaf has been largely forgotten by investors over the past year mostly because their business model,” stated a baroque article written by Mr. Millionaire, “which was formerly ‘to open some marihuana stores’ – has quickly been recognized as not much of a business model at all in Canada.”

“The reasons for this are outside the scope of Westleaf’s responsibility; literally hundreds of competitors have opened across Alberta as that province has done god’s work and created a true industry,” continued Mr. Millionaire, “While the BC, Quebec, and Ontario markets have come to naught due to governmental ineptitude, greed, and hubris.”

Deal highlights:

  • Anticipated revenue of about $740,000 over three months.
  • Delta 9 commits to acquire a minimum of about $4 million of product.
  • With option to increase up to ~$16 million per year.
  • White-Label Agreement is expected to create value-added products to be sold through both Delta 9’s retail stores in Manitoba, through Westleaf’s wholly-owned Prairie Records stores in Saskatchewan as well as through provincial wholesalers.
  • Production of vape pens and cartridges at The Plant by Westleaf Labs, adhere to the strictest safety standards of Health Canada

“This is another important milestone in the development of Westleaf, as we add the critical processing and manufacturing component to our vertically integrated strategy,” stated Scott Hurd, President and CEO of Westleaf.

Hurd believes that the Delta 9 white labeling deal, “operationalizes a key component in the cannabis supply chain”.

“We expect will see increase in demand as we enter Cannabis 2.0,” added Hurd, “and the legalization of a myriad of new products.”

The one-year agreement was previously announced on July 24th.

“When looking at our suite of options for white-labeled derivative cannabis products, Westleaf stood out as the clear choice.” stated John Arbuthnot, President and CEO of Delta 9, “Given Westleaf’s large menu of existing product formulations and distribution capabilities through their cannabis retail chain, Prairie Records.”

Prairie Records is a genuinely brilliant concept, custom-made for the current Canadian regulatory environment.

In his influential 1949 book: The Organization of Behavior, Canadian psychologist Donald Hebb theorized that “one thought is more likely to trigger another thought” if those two thoughts are linked together multiple times in the past.

The retail concept behind Westleaf’s (WL.V) Prairie Records acknowledges the nostalgic link between music and cannabis.

“The concept of the cannabis store taps into music – an element that is deeply woven into every aspect of our lives, no matter who or where you are,” stated Hurd.

The current Canadian cannabis marketing regulations make it almost impossible to create powerful retail brands.  WL is bypassing that by creating a strong brand association between the customer and the store (rather than the product).

With its innovative method of reaching their demographic, WL is erasing the head shop stigma of selling legal weed, while securing Westleaf as a provider of “premium craft cannabis for the discerning Canadian cannabis connoisseur.”

Last week, Westleaf updated investors on the development of its proposed next three key Alberta retail locations:

  1. In the historic Palace Theatre on Calgary’s Stephen Avenue
  2. Directly beside the University of Alberta main campus in Edmonton
  3. Flagship store in the heart of tourist hot-spot Banff, Alberta

“These are premium retail locations,” stated Hurd. “The stores check off all the boxes of our retail concept, high foot traffic locations in urban settings and resort destinations, as well as being in Alberta, which continues to lead the country in legal cannabis retail.”

According to Statistics Canada, the number of Albertans aged 15 or over who’ve used cannabis in the past three months increased from 16% in 2018 to 20% a year later, one of the highest rates among the provinces.

For a millisecond, in February 2019, Westleaf had a market cap of $400 million.

With nothing but a clever concept, that valuation was definitely too high.

WL is now valued at $43 million.

With cash-flow deals like Delta 9, that valuation is probably too low.

– Lukas Kane

Full Disclosure: Westleaf is an Equity Guru marketing client.

Disclaimer: ALWAYS DO YOUR OWN RESEARCH and consult with a licensed investment professional before making an investment. This communication should not be used as a basis for making any investment.

Lukas Kane

Lukas Kane is a Vancouver-based investor and writer.Previously the CEO of a North American investment news syndicate, Mr. Kane was also the Communication Director for a consortium of resource extraction companies.In the course of his career, he has toured copper mines on the Antagfonasto desert in Chile, potash projects in Saskatchewan, cannabis labs in California and clothing factories in Shenzhen, China. A rudimentary speaker of Mandarin, Mr. Kane’s passions are his family, writing and playing football (real football - with the spherical ball).

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