Photo source: Bedrocan.ca

* When a major player in the weed space hits the market quietly, opportunities abound for long players

You don’t know Bedrocan (TSX:V.BED, Stock Price). You say you do, but you don’t. Nobody does.

Why I say this is because, frankly, before having a long, detailed chat with CEO Marc Wayne and CFO Michael Singer, I didn’t really know them. The company has been extremely promo-averse early in its life cycle, which is at once adorable but also (for early shareholders anyway) a concern as public perception of their company has gradually moved beyond their control.

The Bedrocan story, at least as far as the retail investor world is currently concerned, is that they’re connected. Their licensing deal with Bedrocan BV, the Dutch company that has long been one of only four approved to sell cannabis internationally, and the single supplier of medical marijuana to Europe, brings them a pretty sweet deal in return. The Bedrocan BV master grow team will live in Canada for a few years and train a local workforce, it has helped design their state-of-the-art 52k sq. ft. production facility that they hope to have up and running by year’s end, and it is supplying them with imported product via special arrangement with regulators, so they can supply customers while their facility is completed.

That, in itself, is a good story. But it’s not the great story that lies beneath.

That dissonance – the gap between the reality and what the market understands - has been a problem for the company, in as much as it has seen the Bedrocan share price drop from $1.15 on TSX debut to $0.65 barely six weeks later.

That drop doesn’t follow any problems at the coalface. The company is one of the few posting revenues, and the most recent quarterlies showed a 400% rise in revs and 300% rise in profits - $370k and $120k respectively for Q2. Management says September was a great month, so the next round of numbers should be a nice catalyst for stock momentum.

Their product is pumping out on schedule with no gaps in supply since they started out – something no other company can boast. Indeed, competitors, such as Tweed, have referred patients to Bedrocan when their own supply chain hit snags, while other LPs have called about V.BED sending product to bolster their own supply.

Smartly, Bedrocan has kept its weed to itself. After all, as the political adage goes, when your opponent is drowning, throw him an anvil. But Wayne says it’s not about keeping a competitive advantage over others, the decision to maintain a deep inventory goes to a larger corporate edict: To maintain a consistent pharmaceutical grade quality, consistent supply, and a consistent price.

“It’s what we’ve done since we started,” says Wayne. “You can’t tell a patient, thanks for your business but we won’t have any more medicine for you for two months. It’s about respecting the customer. Once we’re doing business with you, you need to be able to trust we’ll be there for you every time.”

Bedrocan currently has a two month inventory and doesn’t take new patients unless it knows it can keep them properly supplied, now and into the future.

Which isn’t to say they don’t have patients. They have over a thousand and the number has been steadily climbing. Most LPs keep their patient numbers a secret, or inflate them based on people who have joined an email list rather than actually done repeat business. Others ignore patient numbers and look to the square footage of their building as a sign of success.

Bedrocan prefers to point to the one metric that can realistically be properly used to demonstrate medical marijuana producer effectiveness: Revenues.

“Our revenues are higher than Tweed’s,” says Wayne. “And our patient numbers are certainly higher than Organigram’s – they don’t have supply right now and might not for some time. We’re making a profit. We’re doing what companies are supposed to do.”

I’ve long said, whenever asked (and sometimes when not), that I don’t like grow plays. To me, marijuana is destined to come down in price as supply overshoots the actual market demand, and a lot of companies don’t have a plan for what to do when that time comes.

What happens if recreational use becomes legal? What if it takes ten years for that to happen? What if Jamaica starts growing it by the metric ton and files a NAFTA lawsuit to demand the right to export it to Canada?

In order to thrive, any and every licensed producer needs a differentiator. For Organigram, it’s organics and the French-speaking market. For Tweed, it’s branding. For T-Bird, a focus on premium quality. For Wildflower, tissue culturing. For Supreme, price.

Bedrocan’s differentiator – the thing that can keep it important when the market tightens – is legitimacy.

Bedrocan has been there. With its Dutch partner, this is a truly global company – and that matters right now, because a lot of global markets are starting to creak the door open to medical marijuana. When they do, the first thing they need is partners that have knowledge, finance, and international governmental clout.

That’s Bedrocan.

“We receive calls monthly to advise and partner on growth opportunities. When a country moves to deregulation, the parties involved need to work with partners that have the kind of background we have. The number of companies that can do that is very small.”

Bedrocan BV is one of the few companies in the world approved for international export through the International Narcotics Control Board, a process that makes the Health Canada MMPR slog look like a round of mini-golf and a margarita.

Wayne points out that, should there be an international growth opportunity, buying Bedrocan Cannabis shares gets you in on the deal.

“Our relationship with the Dutch company is more than just a licensing arrangement; it’s a strong partnership where we collaborate together and will continue to do so to build an international brand that’s credible and trusted and of the highest quality.”

I asked Wayne and Singer for details of the international potential, but they’re choosing to be quiet on the topic. Very quiet. Interestingly quiet.

Others are not. Tweed has been talking about going to the Czech Republic, which is set to open its market. The Bedrocan group is already in amongst it, a confirmed applicant in a process that closed months ago. But you won’t hear that from them.

Nor will you hear about their MMPR progress for their grow facility, which is at the final review stage and likely a gimme - at least as close to a gimme as possible in the inscrutable world of Health Canada permitting. The facility is being built out to the ultra-high pharmaceutical standards that have long been the norm in the Netherlands, under supervision by the Dutch team. They’re confident that will put them at the elite level.

But on the off-chance it takes a little longer to get inspectors out than currently scheduled, Bedrocan management don’t want to make any promises, and so you don’t see them pumping out pictures of grow rooms and mothers and barbed wire fences.

That’s a common theme; “We’re not going to talk about what may be, we’re going to tell you what is,” says Wayne. “We’re not promoters. This team has been in it for a long time, we’ve been educating doctors for a decade, we’re not opportunists seeing a chance to make quick money or an exit or the recreational market. We’re just not interested in playing that game. We prefer to de-risk, build, perfect, grow and bring in revenue, not play for short term share spikes.”

As a company, they can afford to take their time; they’re making money right now and have contingencies in place for any delay on facility approval. But when the facility is approved, they expect to burn rubber, and will make full use of their grow space as quickly as possible.

“We have five products right now, and they’re all branded as medicine,” says Wayne. “You won’t find any purple kush or AK-47’s. Our branding is intended to be something a doctor feels comfortable prescribing.”

Those include Bedrocan (a 22% THC sativa variety derived from the popular Jack Herer strain), Bedropuur (a 20-24% THC indica variety often used for extraction purposes), Bedica (a 14-17% THC variety heavy with the calming terpene myrcene), Bediol (Dutch authorities found this CBC/THC mix useful or arthritis and multiple sclerosis), and Bedrolite (9% CBD, next to no THC, handy for treating epilepsy). If you were interested in learning more about different CBD rich formulas in the form of oil to avoid the side effects of THC, consider checking out www.nordicoil.com for more information. Many people nowadays are buying CBD oil online, whether it be to treat themselves or their pets, for various reasons ranging from anxiety to physical pain. People who do use it and buy online might want to check out these cbdMD codes to save some money on their purchases.

Businesses centered around CBD products, such as skin creams, are thriving at the moment. Those interested in starting up there own businesses within the CBD industry may want to take on this advice of how to build your own cbd skincare brand.

To be sure, that’s a lineup far more likely to get a doctor’s attention and business than, say, White Widow, Green Crack, Brainstorm Haze, and Alaskan Thunderfuck.

Part of the reason for Wayne’s insistence on consistent quality of his medicine is that he’s eyeing a large market of companies that want to do research into the healing qualities of cannabinoids, and the fact that such research simply can’t happen unless there’s consistency from sample to sample.

“Only Bedrocan and Cannamed can claim true consistency, and it comes from using genetically stable material right through the process in a state of the art facility with people who have spent a decade-plus getting it right,” he says. “To make it work, variables have to be removed. You can’t do it in a greenhouse, you can’t grind it, it’s critical for research that every gram is like the last. Patients and doctors want this too. We deliver it right now.”

Bedrocan, to be sure, is undervalued in the current market. Their chart is a horror show which, normally, would point to inherent problems within the company and/or sector, but that’s just simply not the case here. Instead, what you have is a retail market that’s looking for the next big price jump on the back of somebody/anybody, and an institutional market that invested heavily early without being locked into the traditional hold period and has now taken its profits.

The company has a sizeable war chest, which means they can jump on new opportunities without needing to dilute, and their story is one that’s still a few months from its major upward price catalyst; the Health Canada green flag on its production facility.

Here’s what I know: Every single meeting I had with a broker last week eventually got around to how said broker was finding himself unable to resist buying blocks of Bedrocan, being as it’s at half the market cap of Organigram and pulling profit.

I dig Organigram. I own some Organigram. But I’m dying looking at Bedrocan’s share price with my OGI tied up in a four month hold.

In a market (and sector) chocked full of pretenders and promoters and chasers and ‘me too’s and pretty suits and ass pinchers, a management team that wants to set the standard on quality, consistency, revenues, growth and compliance is a refreshing change.

That the market hasn’t spotted that as an opportunity yet leaves the door open for smart investors to get a rare edge on the pack.

This story is an opinion and is not intended to be investment advice of any kind. Always do your own due diligence.