Nextleaf (OILS.C) cuts a deal with an Ontario cannabis grower

April 7, 2020

On April 2, 2020 Nextleaf Solutions (OILS.C) announced that it has entered into a Cannabis Extraction Agreement with “a well-known cannabis producer based in Ontario who operates a 10-acre greenhouse licensed for cannabis cultivation.”

The grower is a private company.  Lots of chit-chat on the bull-boards about who that might be. We’ll steer clear of that for now, because there’s a bigger picture forming.

OILS is a Canadian cannabis extractor developing technology for extracting and distilling THC and CBD oils from cannabis and hemp biomass.

Crude cannabis extract is precursor to high-margin end products – in the same way that crude oil is converted into petroleum, gasoline, aviation fuel or hundreds of different expensive chemicals.

The ability to customise extracts is critical to the commercialization of the technology. A vape cartridge manufacturer may require an extract devoid of flavonoids. An edible manufacturer may require something entirely different.

“Roughly CND $4.4 million worth of cannabis edibles and vape products were sold via wholesale and online channels in Ontario in January, 2020, the first month the products were available in the nation’s largest consumer market,” reported MJ Biz Daily.

“Licensed producers have invested heavily in the innovation behind these legal, tested products and are again proving to consumers the value of shopping legal,” stated Ontario’s government cannabis retailer.

This is Nextleaf’s jam: manufacturing differentiated high-margin cannabis oils.

OIL’s CEO, Paul Pedersen, believes the key to a strong sustainable cannabis extraction business is innovative technology protected by international patents.

Nextleaf owns a portfolio of over 15 patents and over 60 pending patents for the extraction, purification, and formulation of cannabinoids.

Nextleaf intends to make money through IP licensing, and supplying THC and CBD oils through Nextleaf Labs, a Health Canada licensed standard processor.

On Feb. 27, 2020 Nextleaf announced that it acquired a U.S. patent to “process acetylating delta 9-THC, and subsequent refinement into THC-O-Acetate using salting-out assisted liquid-liquid extraction and distillation techniques.”

That’s a mouthful.

Here’s what it means: another pathway into a lucrative niche market.

“THC-O-Acetate is a cannabinoid-derived metabolic prodrug with potentially very unique medicinal benefits associated with efficient and targeted drug delivery,” stated Ryan Ko, Nextleaf’s Chief Technology Officer, “Anecdotal accounts have reported gradual onset, longer lasting benefits, and altered psychological effects when compared to THC.”

“With this new U.S. patent, we are able to efficiently modify and potentially improve upon the medicinal properties of a natural product that has been in use for thousands of years,” stated Pedersen, “As large pharmaceutical companies look to enter this space we believe such IP protected processes and resulting products will draw a lot of attention.”

April 2, 2020 Cannabis Extraction Agreement Highlights:

  • The unnamed grower will provide cannabis biomass for Nextleaf Labs to process into refined and distilled THC and CBD oils.
  • The bulk distilled THC and CBD oils will be supplied to the wholesale market by Nextleaf Labs, with net proceeds shared by Nextleaf Labs and the grower.
  • The agreement will end after 12 months or after 15 metric tons of biomass has been processed, at which time it can automatically renew for successive one-year terms.
  • The Agreement has the potential to generate up to $16 million in gross revenue for Nextleaf Solutions.

In an interview with Proactive Investor, Pedersen talks about the mechanics of the April 2, 2020 deal:

 

“We believe we are delivering on the overall mission of building a fundamentally-sound company that operates one of the most efficient, technology-driven cannabis oil refineries in Canada,” stated Nextleaf Solutions CFO, Charles Ackerman, “We look forward to taking the business into the next phase of growth.”

Nextleaf believes there is significant opportunities to monetize lower-grade cannabis materials into high-purity distilled oil. Investments in technology enable the delivery of efficient, scalable, and lower cost solutions to B2B partners and customers, driving higher margins and ultimately a competitive barrier for the Company over the long-term.

“When Nextleaf obtained the first patent for the industrial-scale extraction and purification of cannabinoids,” stated Taran Grey, NextLeaf’s Director of IP, “it broadcast our teams’ demonstrable talent for innovation. To provide greater certainty of that talent, we have now repeated the accomplishment a dozen more times in four jurisdictions, with further patents expected to be granted shortly.”

In an environment where Life Science patent applications have a pending to issuance success rate of less than 50%, Nextleaf’s 100% success rate is unparalleled.

OIL’s industrial-scale extraction and purification plant in Greater Vancouver, BC has a design capacity to process 600 kg per day of dried cannabis biomass into refined oils.

– Lukas Kane

Full Disclosure: Equity Guru has no commercial relationship with Nextleaf.

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