Fundamental Research has initiated coverage on Biome Grow (CSE:BIO) with a Buy rating and a fair value estimate of $1.25 per share. The report highlighted Biome Grow’s focus on the Atlantic provinces, stating that, “competition amongst LPs is less fierce,” and, “The company’s purposeful avoidance of Canada’s most LP dense provinces allows them to establish their brands across the Atlantic provinces, building a strong domestic base.” The report also higlighted the company’s supply agreement with Newfoundland, stating that it is, “one of the largest provincial supply agreements announced to date.”
As quoted in the Fundamental Research report:
With Biome, management intends to establish a cannabis business platform built upon risk-hedged production and a dominant presence in the Atlantic provinces. To hedge production risk, Biome has placed an emphasis on securing off-take and supply agreements prior to even beginning construction on production facilities, which they have successfully done in the province of Newfoundland.
On November 2, 2018, Biome secured a 24,000 kg, three-year supply agreement with the Newfoundland government, one of the largest provincial supply agreements to date. Note that multi-year supply agreements with provincial governments are exceptional, long-term economic agreements that are large-scale in nature and differ from provincial purchase orders. Provincial purchase orders are short-term, smaller orders made to secure near-term inventory, and almost all LPs receive provincial purchase orders on a recurring basis given short-term supply shortages. However, Biome’s supply agreement is one of only a rare few signed between an LP and a provincial government. in addition, the province agreed to issue Biome five retail storefront licenses, and we believe that there are very few provincial supply agreements that exhibit these features. The ability of Biome to secure such a significant contract, despite their relatively small size relative to other LPs, demonstrates the capability of Biome’s management, as well as the strength of Biome’s relationship with Atlantic Canada.