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A closer look at Canada House Wellness Group and their million-dollar acquisition

Canada House Wellness Group (CSE:CHV) kicked off the new year by disclosing new details of their Vegreville acquisition in Alberta. The million-dollar acquisition was first announced on December 17, providing the company with a significant 160,000 square foot growth opportunity. With Friday’s update, the acquired assets include two properties right outside the town of Vegreville that are already approved for cannabis growth production. This gives Canada House enough space to build up to eight cannabis facilities in the city, and the company intends to finish the first phase of their custom-built construction by the end of the year to meet a 2020 production deadline.

“The initial custom-built production module on this property will produce more than 5,000 kg annually,” CEO of Canada House Chris Churchill-Smith explained in Friday’s announcement. “We will continue to add additional production modules strategically. As of now, the property will support up to 8 modules, with a total annual production of more than 40,000 kg.”

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The primary facility will be able to produce one hundred kilograms of cannabis per week, which puts Canada House in the position for which Churchill-Smith is looking. The pot stock is aiming to custom build facilities that will fully support their future distribution plans for the western provinces. Canada House has already established themselves as a medical marijuana brand in the country, and these production updates match the goals of their rebranding.

“This facility will provide great efficiencies to Canada House as we scale production to meet our known demand for medical and recreational cannabis,” Churchill-Smith added in Friday’s press release.

Including in Friday’s announcement was Canada House’s second tranche of funding from Alumina Partners Ltd. Alumina promised a $25 million investment to the company in October which has since been used to fund their acquisitions and production facilities. The company also invested in increasing their patient base, a strategic move for a pot stock whose reputation is built on patient-specific experiences and relationships.

A closer look at this small-cap pot stock

For five years, Canada House Wellness Group operated as Marijuana for Trauma Inc., a medical marijuana program geared toward servicing Canadian veterans. Canada House brand of medical marijuana is not strictly limited to military personnel, and the brand evolved to match its service to “Canadians from all walks of life,” as Canada House President Alex Kroon described it. The rebranding was timed almost perfectly with the country’s legalization of recreational marijuana in October, and the pot stock has hit the ground running ever since.

The risk with these small-cap pot stocks is that many are too new to make any significant predictions. Acquisitions and seed sales are positives for any pot stock, but investors are left wondering if it is just too little too late at this point. Canada House, with a market cap of $33 million, reported revenue of only $1,240 for the second quarter of 2019. That number represents a fifty percent increase over the last quarter, but it is nothing at which an investor will bat an eyelash. But perhaps that is the point.

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In the company’s second-quarter results announcement, CEO Chris Churchill-Smith noted that the positive revenue growth “substantiates our medical cannabis clinic model.” With a focus on the clinic and the patient experience, Canada House may be looking at an entirely different way to build a brand and increase revenue. Keeping business at a more intimate level might be the way to stand out as the competition in the market builds over the coming months, especially among North American pot stocks.

“...We also initiated new efforts with third-party patient-detailing companies to grow our patient base,” Churchill-Smith concluded in the fiscal announcement. “As revenue increases, we are matching our growth in production facilities with known demand from our clinic and retail channels to drive profitability on a go-forward basis.”

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