If you are interested in announcements that push up the share price of companies for a more extended period, you will like our next story. The stock price of NEWSTRIKE RESOURCE (OTCMKTS:NWKRF), which is the parent company of Up Cannabis Inc., has commenced to spike up after the company released that it would begin sales on January 5, 2018. Additionally, the company may be acquired by CanniMed Therapeutics Inc. (TSE:CMED) in the next few months.
The stock returns so far have been extraordinary. From trading at $0.50, the share price increased in less than ten-days period to hit the one-year highs of $2.25. For those who need a calculator, the share price represents more than 350% stock returns. But, there is more. The trading volume was also remarkable. Market participants saw how the volume went from less than 0.1 million shares to more than 0.5 million shares traded some days. It shows that many in the market are having a close look at this company.
Check out the following stock chart and form your own opinion:
Newstrike Resources Ltd. was founded in Ontario, Canada, on September 24, 2004. The company is headquartered in Brantford, Ontario, and its shares are traded on the TSXV under the symbol “HIP.”
Newstrike is focused on cannabis and related products through its wholly-owned subsidiary, Up Cannabis, which intends to commercialize high-quality, distinct cannabis brands, each of which is designed to appeal and be marketed to crucial segments of the adult cannabis market.
How did the company enter the marijuana business?
The management of NWKRF is quite smart and did not want to commence in the industry from scratch. It decided to obtain know-how and assets from a company that had started in the marijuana sector in July 2013. Thanks to this merger, the company acquired the Brantford Lease with the intention of producing cannabis for the emerging market for medical cannabis. The acquisition of this new business was made official in December 2016. Thus, the company made all the latest developments in 2017.
We studied how the brand and the business strategy of the company was prepared last year. The company is doing a lot of work to build this business, and we have high expectations on this name. We cannot discuss every single step that it has done, but please check the following list of most significant developments; we believe that they show the work done:
-On January 12, 2017, NWKRF signed an agreement with Canadian musical legend, The Tragically Hip, and members of its management team to collaborate and develop brands and marketing initiatives. The company will use The Tragically Hip’s name and song names as strains of cannabis, extracts, and derivatives in Canada. This is the first company in the marijuana scope, identified by the team, which has hired a band to promote the business. It is an exciting idea, which, we believe, will increase awareness.
-In March 2017, the company hired The Feldman Agency to receive entertainment and consulting services. This company also has expertise in the music industry. It will bring more than 40 years of expertise in artist representation, talent, booking, event services, and corporate consulting.
-On April 30, 2017, the company acquired Enderlein Nurseries Ltd., which provides 38 new hectares that could increase the overall cannabis production capacity. It was great news.
-On June 21, 2017, the company applied to be able to sell cannabis in Canada.
-On July 27, 2017, NWKRF formed Up Cannabis Niagara Inc. and signed an agreement with Westbrook Greenhouses Ltd. for the purchase of the Niagara Facility, a modern, automated 200,000 sf greenhouse facility that includes 16.6 acres. Again, the company increased its capacity.
What did make the share price move up?
The pending acquisition by CanniMed Therapeutics Inc. is critical.
On November 17, 2017, the company released that it had signed an acquisition agreement with CanniMed, which is significant marijuana player in Canada. It has a market capitalization equal to CAD$650 million, and CAD$54.20 million in cash standing on the balance sheet.
Like always, shareholders will need to approve the merger. The Newstrike meeting is scheduled for January 17, 2018, whereas the CanniMed meeting is scheduled for January 23, 2018.
What’s our take?
We believe this big competitor wanted to acquire the company’s future production even before the company starts selling cannabis. It may be beneficial for NWKRF, which will earn better financing options as well as access to CanniMed’s know-how in the marijuana sector.
For those interested in the transaction, please note that Newstrike shareholders will receive 33 CanniMed shares for every 1,000 Newstrike shares held. Additionally, also notice that the two companies are already working together. On January 2, 2017, CanniMed and Up Cannabis entered into a definitive supply agreement for medical cannabis. Up Cannabis will produce and make available to CanniMed up to 1,500 kg of marijuana. The fact that both companies are working together shows that their teams are already in contact, so the close of the transaction is more likely.
However, the biggest obstacle is Aurora Cannabis In (OTCMKTS:ACBFF), which is trying to acquire CanniMed.
More production and the right to sell marijuana
On January 5, 2018, the company released that Health Canada allowed Up Cannabis to sell cannabis in dried marijuana form under Access to Cannabis for Medical Purposes Regulations. The news is very significant, not only because it is official that the company will be able to receive revenues from the sale of cannabis, instead because not many companies had obtained licenses in the country. Be ready to check the next financial statements:
” Up Cannabis is extremely well-positioned to succeed and very excited to launch when the adult-use market opens in the coming months.” said Jay Wilgar, CEO of Newstrike and Up Cannabis.
Regarding the production capacity, the good news was also received. On January 9, 2017, the company acquired site plan approval from the Town of Lincoln, Ontario, for its automated greenhouse facility in the Niagara region. As a result, the capacity of Niagara Facility has increased to up to 320,000 sq. ft. of dedicated cannabis production space.
Currently trading with a market cap of $925 million, NWKRF is an exciting story among small caps. With approximately $5 million in cash, $23 million in total assets and $10 million in total liabilities, the company seems financially equipped to keep the developments running.
To sum up, be ready to check what shareholders say about the transaction in 2018. If NWKRF merges with CMMDF, great. If not, NWKRF will be fine on its own until another player comes along with another takeover offer.
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Disclosure: We have no position in NWKRF and have not been compensated for this article.
Image courtesy of Thomas Hawk via Flickr