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Everybody and anybody can grow weed but only a very few have a delivery system and I believe Lexaria has the best and the cheapest. Definitely flying under most peoples radar.
Posted at Lexaria Biosciences Investors Group on Facebook by Jim Moran
http://highenergytrading.ltd/investors-aggressively-betting-cannabis-stocks-right-now/
What ticker change?
I can't hold her Scotty, I think she's going to blow!
Thanks to CIBC for hitting all the bids (LXX) in the last few minutes pushing the price back .07 to 2.77. About another 100,000 unloaded today.
Definitely not retail. Shares are being fed into the market in mostly small lots of 100-200. Automated computer trading at work.
And they're at it again this morning, selling most of the LXX shares this am, capping any price move.
The biggest net seller of LXX is CIBC -129,102 already this am and they appear to still be at it.
I see broker #11 Macquarie is the second largest purchaser of LXX this month. They have been picking away at LXX every day this month grabbing 116,713 and selling none.
The largest buyer of LXX this month has been #80 National Bank with net purchases of 231,325.
Hit cdn 2.49 briefly. Wow!
Johnson and Johnson seems like a natural fit for Lexaria as they make the Nicorette line of products but don't have anything that you can actually swallow. In addition, they also sell NSAIDs.
Don't try to be cheap and get outbid J&J, go for the gusto!!
Good times coming! Lexaria wouldn't be going to the time and expense of setting up separate corporations unless they were confident deals were going to be consummated.
During the California and Klondike gold rushes, it was said that the people that made the real money were the ones that supplied the miners.
In today's Green Rush it will be the companies that supply the technology to the producers, like Lexaria that make the big greenbacks!
https://www.forbes.com/sites/kriskrane/2018/04/25/cannabis-cultivation-will-be-a-race-to-the-bottom/#543ee2074184
Yeah, someone keeps whacking the asks. Obviously trying to manipulate this thing up.
Heh! I represent that remark,eh. LOL
DehydraTECH™ Powered by Lexaria-Tested on animals.
Before it reaches the stomach or the liver! If it doesn't reach the stomach then it doesn't go to the liver. Cannabis is broken down in the stomach by acid and further metabolised by the liver so if it's absorbed through the small intestine it avoids that.
Nano-emulsion is great for dispersing the cannabis oil in water but the product will still go through the stomach and liver where a lot will be broken down and the absorption into the bloodstream is not as fast as LXX.
LXRP's tech allows the product to be absorbed directly into the body's lymphatic system through the small intestine before it reaches the stomach.
Sure looks like they're infringing but it's hard to tell with the limited info available.
I ordered some of their tea also, it was quite nice but ridiculously expensive.
By the time the tea got to me in Yukon it was almost CDN $50 with freight, brokerage fee, GSTax etc.
Thanks, Eric.
It's a turd alright and you can't even polish it!
Technicals look terrible, looks like we're about to test the support at the 200 DMA, .40 cents. If we break below the 200 DMA we will soon be a .25 cent stock again. Sure hope management has developments to announce, other than the upcoming financing, or this baby's going down.
News Release - February 23, 2018 4:38 PM ET
Datametrex AI's blockchain, machine learning, big-data, & cryptocurrency mining divisions poised for spectacular growth
NEW YORK, NY, February 23, 2018 /Sector Newswire/ -- Datametrex AI Limited (TSX-V: DM) (FKT:D4G) (OTC: DTMXF) is the subject of a Technology MarketWatch Journal review. Datametrex is a Canadian-based technology focused company with exposure to four exciting verticals;
• Artificial Intelligence and Machine Learning through its wholly owned subsidiary, Nexalogy (www.nexalogy.com).
• Implementing Blockchain technology for secure Data Transfers through its joint venture company, Graph Blockchain (www.graphblockchain.com).
• Industrial scale Cryptocurrency Mining through its wholly owned subsidiary, Ronin Blockchain Corp (www.roninblockchain.com).
• Big Data, collecting data from retail point of sale environments.
Each division is early in its lifecycle, and ripe with potential for scale. Datametrex's share price is poised for significant upside revaluation as its current market cap (~C$42 million, DM.V trading at ~C$0.21) appears disproportionate relative to the sum of each divisions potential. Datametrex AI Limited was launched in the later-half of 2017 with the intent of DM.V being a vehicle for attracting some of the most unique cutting-edge technology businesses poised for break-out and individuals at the fore of their fields. The result is a targeted yet diversified approach that offers shareholders exposure to the hottest up-and-coming sectors of the new economy.
Full copy of the Technology Journal Review may be viewed at http://technologymarketwatch.com/dm.htm online.
Datametrex's objective is to facilitate each division, so they are in a position to execute and hit milestones, by providing them the tools in their toolbox to build out the businesses, whether that be capital or introduction to new clients. Spearheading Datametrex's management team is Chairman & CEO Andrew Ryu, COO & President Jeff Stevens, and Chief Strategy Officer Michael Frank, all are highly experienced in the capital markets, and have several decades of success under their belt in the public markets. This management team is known for recognizing opportunity, moving quickly, their ability to raise capital, and structure deals.
The following is a synopsis of each division, in the order they were acquired/incepted, and why valuation is apt to rise.
1) Nexalogy Environics Inc. - Artificial intelligence and machine learning (a 100%/wholly-owned subsidiary of Datametrex): Nexalogy's technology is unlike anything that exists and is attracting increasing high-level federal government attention/contracts, this division has growing revenues. Nexalogy has NDAs that prevent disclosure of client specifics, however we do know Datametrex currently has 3 Federal Government agency contracts, and has stated it is targeting/involved with government agencies in security, health & safety, and public-Canada. Nexalogy has software and systems with the ability to scour the vast web of social media and detect weak signals/anomalies behind the noise, identify unknowns, and generate customized actionable intel for clients. Nexalogy is on target for ~C$2.5M+ in revenues for 2018 (up from ~$1.5M in 2017), and within a few years it is conceivable to see an increase to >$40M revenues. It is highly unlikely governments will spend less on counter-terrorism and the like, they are prone to increase appropriations, plus other governments are apt to adopt this technology. Important to note is that with AI/machine learning the increasingly clean data sets that Nexalogy generates through years of refinement (application specific teaching) position the product as the the go-to choice for anyone wanting actionable results. Nexalogy Environics Inc. currently employs ~13 people based out of Montreal, including best-of-breed stack developers and machine learning developers. Additionally, Nexalogy recently announced a new AI business intelligence product that focuses on delivering competitive analysis and stock market awareness for Fortune 1000 publicly traded companies. Nexalogy is a proven entity in the business intelligence market having already provided premium services for major names such as Ford, PWC, Petro-Canada, and YellowPages.
Fig. 2 (below) Conversation Sculpting and Clustering Algorithms - Seen is a representation of Nexalogy analytics engine able to peel like an onion, ranking engagement, participants in clusters, patterns, obfuscation, and content.
Nexalogy was started by astrophysicist, Claude Théoret, renowned for discovering that the best way to study black holes is to examine how stars interact with each other. He created algorithms to map relationships between the stars and gain a fresh understanding of the universe. In 2006, Claude began to apply the same algorithms to analyze connections between words and the people who write them throughout the social Web and advance Nexalogy to the point it is unparalleled. Claude recognized the best way to advance Nexalogy to where it can reach its potential was by taking it public with people experienced in public markets and with the right vehicle; he chose newly formed Datamatrex in late 2017 as the perfect fit -- Nexalogy was Datametrex's priority/first acquisition. Claude is now a ~9% owner of DM.V and still leads the Nexalogy division. Since Datametex's acquisition of Nexalogy, management has refocused the division's resources toward higher-margin big-government and IR business intelligence products, and away from Nexalogy's old 'freemium' (try first - then upgrade) model. The social media analytics market is forecast to grow to US$5.4 Billion by 2020. Clearly the sum of the parts of Datametrex is greater than the whole, it is not unreasonable for investors to attribute a ~C$40+ million valuation now (on to much higher from there) for the Nexalogy division alone, based on where this is headed.
------ ------ ------ ------ ------ ------ ------ ------ ------
2) Graph Blockchain Limited (Planned spin-out): Graph specializes in implementing custom blockchain technology for secure data transfers for corporations and government agencies. Graph is a spinout that Datametrex is planning for 2018 that is expected to see shareholders of DM.V receive 1 share of Graph Blockchain Limited for every 20 they hold of DM.V. (the record date not been set yet, look for guidance on this soon). Datametrex corporately will also retain a ~20% interest in the new publicly traded entity, the whisper number on Bay Street is that Graph Blockchain Limited will IPO at ~C$35 Million market cap (which would give DM.V's 20% retained interest an intrinsic value of C$8M). Graph has already been sufficiently financed with a recent seeding of $3.5M (proceeds to be used to build its Graph Blockchain solutions), and thus it is likely only a very nominal financing will accompany the IPO for the main purpose of establishing price only. Graph is a 50-50 joint venture (JV) Datametrex started with San Francisco-based Bitnine which has vended-in its cutting-edge Graph Database technology.
Graph's technology processes blockchain data up to 1,000 times faster than traditional methods and is 10,000 times faster at presenting data from the blockchain to the dashboard (see overview of the DataGraph technology solution further down in this article).
Currently Graph is contracted to develop a blockchain solution prototype in partnership with IBM for a Korean conglomerate's utility for US$400K. This ~US$400,000 contract for the prototype, if successful (and there is no indication it will not be successful), we anticipate will turn into a full-scale multi-million dollar project for Graph.
Graph is also under contract with a medical marijuana client to facilitate a blockchain solution for clinical trails (aside: this client project is an example of Datametrex cross-selling business divisions to close a deal, as the same client also signed a contract with Nexalogy to find people discussing/complaining of ailments online, then target them with client ads which lead to filter surveys qualifying them as prospective patients for clinical trial, and the results are stored on the Graph Blockchain -- saving millions of dollars and time for the client).
The global blockchain market is a megatrend and only just beginning. Expect Graph Blockchain Limited to announce additional contracts as 2018 progresses as the level of discussion for its solutions runs high. Considering that there are companies in this space going public on just a white paper and a promise to build a prototype and they get a $40M valuation, it is safe to say the aforementioned ~$35M IPO market cap whisper number for Graph reflects a desire by Datametex (and Bitnine) to give new shareholders room to experience appreciation from the get-go.
The following categorized list of blockchain projects have been defined as "in the pipeline" by Datametrex, either in some level of discussion (potential/targeted) or actual development:
A) Real-time Transactions
• Public Infrastructure – building a bespoke secure payment gate solution for electric vehicle charging stations.
• Fintech Industry – to provide Blockchain solutions for efficient processing of real-time transactions.
B) Asset Smart Contracts
• Real Estate – to provide a Blockchain solution for financial transactions and smart contracts.
• Vehicle and Equipment Sales – Vehicle history, smart contracts and financial transactions.
• Logistics – to provide trusted shipping solutions.
C) Document and Certificate Authentication
• Medical Industry - solutions to provide secure and managed transactions among highly connected entities.
• Education Sector – solutions to verify degree, diploma, and transcript authentication.
• Document Management – to provide document integrity and confidentiality management.
------ ------ ------ ------ ------ ------ ------ ------ ------
3) Ronin Blockchain Corp. - Industrial scale cryptocurrency mining targeting 140Mw, 70,000 rigs (a 100%/wholly-owned subsidiary of Datametrex): Ronin’s business model is based on a centralised AI powered mining platform to operate a geo-diversified footprint of industrial scale blockchain mining operations.
Ronin is positioned to become a cryptocurrency mining powerhouse, it benefits from several advantages stemming from its unique relationship with Gosun. Gosun is a public company in China which owns 90+ data centers across China (plus others globally), their tenants are major entities (e.g. Alibaba, Tencent, China Telecom, etc.) which use tier-1 and tier-2 data centers. One of the founding partners of Ronin was the Chairman and CEO of Gosun, and when Ronin was acquired by Datametrex that interest was converted to becoming an ~8% owner of DM.V. Datametex announced that Ronin has locked-in with Gosun 1) immediate access to Gosun's datacenters and infrastructure to house Ronin's server rigs, 2) power agreements for pass-through pricing, and 3) the ability to piggy-back on procurement. Datametrex via Ronin this February-2018 signed an agreement with Gosun giving it access to 100Mw of power immediately. Without the need to spend millions on space and infrastructure, Ronin has a contract that will allow A) immediate access to hosting capacity of up to 10Mw and 5000 server rigs, B) ability to increase capacity up to 100Mw and 50,000 server rigs by December 31, 2018, and C) commencing Q2 2019, ability to scale up incrementally with a minimum capacity of 10Mw and 5,000 server rigs per quarter up to a maximum of 140 Mw or 70,000 server rigs by December 31, 2019. Ronin also has a foothold in Quebec through Nexalogy which is from Montréal and has a deal with Hydro Quebec.
Datametrex does not intend on long-term hodling, it will mine coins with instructions sent from Vancouver to the remote rig servers based on whatever its AI algos indicate is moving/poised for movement, once mined the coins will be scraped and traded. From a tax perspective there is unlimited trading between coins without triggering taxable profits, taxes are not triggered until digital coins are monetized/converted to legal tender. Datametrex will also employ the use of cold storage devices (treasures) when practically possible so as to maximize security.
Out of the gate Ronin has announced it is procuring GPUs and will focus on alt coins (e.g. Monero, Ethereum Classic, Zcash, Litecoin, etc.) over ASIC (application specific integrated circuitry which is more for Bitcoin; ASIC uses more energy and is used to solve more complex equations). Down the road, as Ronin builds out systems, it plans to diversify to say 20% ASIC, however to start it will go with the flexibility of GPU. Ronin is facilitating procurement in increments, with the first mining rigs set to be delivered and installed in both locations (Asia & Quebec) late Q1 2018 and are scheduled to be operational in early Q2 2018. As Ronin's relationship with Gosun matures it is possible terms of procurement will sweeten as the rigs are expected to more than pay for themselves in short order. Gosun has some of the largest cryptocurrency companies knocking on their door asking if they have excess capacity, looking to get in, Ronin has first-mover advantage. We calculate that if Ronin were to mine at 100Mw, at current valuation of cryptos, Datametrex would be looking at annualized revenue rate in the order of ~$220 million at ~55% margins.
------ ------ ------ ------ ------ ------ ------ ------ ------
4) Shoptalk Analytics Group Inc. (Datametrex has a LOI to acquire 100%): Shoptalk Analytics is a Toronto based data collection company focused on independent pharmacies in the USA, offering plug and play retrofit solutions. Shoptalk solutions capture vital real-time Point of Sale (POS) and other related data for key decision making by a number of healthcare providers. The company has a key distribution agreement with McKesson Corporation. Shoptalk is able to tap into point of sale terminals, upgrading them to have benefits of new cloud based terminals; aggregating data, providing real-time access to data, and remote access to data. Datametrex went public with its own big data product as its qualifying transaction, however it quickly identified Shoptalk Analytics as an acquisition target as Shoptalk was much further developed, it was an opportunity to leap-frog some hurdles, and advance the aggressive anticipated adoption curve of Shoptalk. The Shoptalk acquisition plans were put on hiatus so Datametrex could focus on the Nexalogy acquisition opportunity. Now that is complete, Datametrex is revisiting the Shoptalk opportunity and is expected to close on the transaction soon.
Shoptalk Analytics has a foothold in independent pharmacies in the USA, McKesson introduced Shoptalk to a number of clients, and those opportunities converted into the relationships they have currently. The value of the data that can be gathered at the pharmacy level is huge and can be leveraged/monetized in many ways that make the Shoptalk product indispensable to the client once in use. Datametrex has impressive performance targets for Shoptalk written into the binding Letter of Intent to acquire, with staggered payments (cash and shares) totaling C$4M -- contingent upon Shoptalk hitting three aggressive milestones -- the final being 500 paying locations within 26 months. A paying location is defined as a pharmacy that has installed the device and has agreed to a 1 year contract.
Full copy of the Technology Journal Review may be viewed at http://technologymarketwatch.com/dm.htm online.
This release may contain forward-looking statements regarding future events that involve risk and uncertainties. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual events or results. Articles, excerpts, commentary and reviews herein are for information purposes and are not solicitations to buy or sell any of the securities mentioned. Readers are referred to the terms of use, disclaimer and disclosure located at the above referenced URL(s).
SOURCE: Sector Newswire editorial
editorial@SectorNewswire.com
Additional Disclaimer and Disclosure I Contact I Terms and Conditions I Copyright I Privacy Policy
I don't intend to have any luck with that one, NSHS. Whether it's a POS I don't know. Pays to watch the competition!
I don't think they can compete, on a cost basis, with LXRP's technology which is pennies per dose versus their nanotechnology which is probably dollars per dose. Plus they don't have a patent, yet.
I see that NSHS doesn't have any patents awarded yet...
"patent-pending NanoSphere Delivery System™"
And I don't believe their system would work with edibles, the encapsulated product would go through the GI tract and through the liver. Patches, sprays, strips.
They can't beat lexaria on cost!
I like the part about being in negotiations with 20 companies in Canada, US and Mexico.
Chart looks Terrible!
We broke through support at .80 then .70, if we don't hold .60 this thing is set to test the 200 MA at around .40.
Maybe then management can give us some news-100 million share issue at .36?
I don't know what is going on with this company, you rarely hear anything from them!
Are they still in business? LOL
Lexaria paid for that report!
Siddharth Rajeev, B.Tech, MBA, CFA
Anthony de Ruijter, BA. Econ
January 12, 2018
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? 2018 Fundamental Research Corp. “10+Years of Bringing Undiscovered Investment Opportunities to the Forefront” www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Lexaria Bioscience Corp. (OTCQX: LXRP / CSE: LXX) – Initial Cannabis Focused Disruptive Biotech
with Multi-Market Potential
Sector/Industry: Cannabis / Life Sciences www.lexariaenergy.com
Market Data (as of January 12, 2018)
Current Price US$1.50
Fair Value US$4.64
Rating* BUY
Risk* 4 (Speculative)
52 Week Range US$0.27 - US$2.54
Shares O/S 69,912,141
Market Cap US$104.9 M
Current Yield N/A
P/E (forward) N/A
P/B N/A
YoY Return 268.75%
YoY Russell 2000 16.81%
*all figures in this report are in US$ unless otherwise
specified.
**see back of report for rating and risk definitions
Investment Highlights
? Lexaria Bioscience Corp. (“Lexaria”, “Company”) is a life sciences
company that has recently received patent protection for their
DehydraTECH™ technology from the U.S. Patent and Trademark
Office.
? DehydraTECH™ is the company’s proprietary drug delivery
technology that improves the way that active pharmaceutical
ingredients are transported through the human gastrointestinal tract.
? The company’s recent patent protects their intellectual property with
regards to cannabinoids, nicotine, Non-Steroidal Anti-Inflammatory
Drugs (NSAIDs), and vitamins. These are huge markets, representing
a multi-billion-dollar market.
? DehydraTECH’s™ applications have already been market and
laboratory tested for cannabis products, with upcoming research
projects planned to test the technology’s applications to other
potential active pharmaceutical ingredients.
? We are initiating coverage with a BUY rating and a fair value
estimate of $4.64 per share
Risks
? Inability to apply DehydraTECH™ to other drugs apart from
cannabis limits the technology’s commercial potential.
? Additional patents required to protect DehydraTECH™ in
jurisdictions where Lexaria has not yet secured patents.
? Uncertain regulatory outlook for cannabis, the initial focus of
Lexaria’s operations.
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PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Overview
DehydraTECH
Formed in 2004 as an Oil and Gas company, Lexaria transitioned into the biotech and
alternative health space in early 2014. As per the transition, the company has developed a
potentially disruptive drug delivery technology that infuses ingestible compounds with lipids
to facilitate passage through the human gastrointestinal tract, and dramatically improve
bioavailability of the contained drug. On October 31, 2017, the company announced that
their DehydraTECH™ technology had received a Notice of Allowance from the U.S. Patent
and Trademark Office, which allows the company to now target the nicotine, cannabinoid,
Non-Steroidal Anti-Inflammatory Drugs (“NSAIDs”), and fat-soluble vitamin markets. The
issuance of the patent was completed on December 12, 2017. This is a breakthrough for the
company, as these new markets are significantly large. Nicotine in particular, is a multihundred-
billion-dollar industry that is rapidly moving away from traditional smoking
methods, with no edible nicotine products commercially available at current.
Lexaria’s unique delivery technology, DehydraTECH™, is designed to enhance the
performance of certain compounds in consumable products. The now patented technology
has been laboratory and market tested, and has been proven to improve the way active
pharmaceutical ingredients (“APIs”) are ingested across four categories:
? Taste
? Smell
? Speed of action
? Bio-absorption and bioavailability
The table below outlines the advantages that Lexaria’s DehydraTECH™ delivery system
exhibits over traditional delivery systems:
Source: Company
The ultimate effect is that DehydraTECH™ increases the bioavailability of ingested
compounds whilst reducing the time of onset. According to management, the time of onset
for regular delivery technologies ranges from one to two hours usually due to liver
metabolism. With DehydraTECH™, the time of onset is reduced to 15-20 minutes, or a
minimum of a third of the usual time of onset. The process by which DehydraTECH™
works is as follows:
1. The desired API (i.e. cannabinoids such as THC) is combined with a fatty acid oil
(i.e. sunflower oil).
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? 2018 Fundamental Research Corp. “10+ Years of Bringing Undiscovered Investment Opportunities to the Forefront” www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
2. The compound is added to a food carrier/ particle such as mannitol.
3. Dehydration synthesis is used to remove water from the compound. Dehydration
bonds the molecules, allowing passage through the gastrointestinal tract with
minimal loss of concentration.
The result is that the fatty acids provide protection for the compound and expedite passage
through the gastrointestinal tract. Furthermore, the small intestine quickly absorbs longchain
fatty acids into the lymphatic circulatory system (bypassing the first pass liver effect, a
phenomenon whereby the concentration of a drug is greatly reduced before reaching
systemic circulation) whereas medium-chain fatty acids travel via the portal vein into the
liver. As added bonuses, fatty acids are believed to block APIs from bitter taste receptors,
improving the natural taste and reducing the need for sugar/ additives that are detrimental
towards health. Edibles manufacturers may also use lower cost and less refined API inputs
for potentially higher profits, according to the company.
DehydraTECH™ has a long history of lab testing and scientific research to back up the
potential benefits for prospective licensees.
? An in vitro absorption study conducted on August 2015 found that DehydraTECH™
increased bioabsorption of CBD in human intestinal tissue by up to 499%.
? A human biomarker study initiated in January 2016 found a 5-10 times increase in
salivary nitric oxide (a CBD surrogate) within 15-30 minutes.
? A human focus study conducted in May 2016 found that DehydraTECH™
significantly improved the time of onset of THC infused chocolates in volunteers,
decreasing time of onset to 15-20 minutes. Commercially available cannabis edibles
tend to exhibit a longer time of onset, often in excess of an hour.
In addition, new research opportunities with a focus on Lexaria’s DehydraTECH™ have
been signed and are currently underway:
? In February 2017, the company signed a collaborative research agreement with the
National Research Council of Canada to explore the opportunities of
DehydraTECH™ in significantly increasing bioavailability. The research agreement
is for an 18-month term, and Lexaria has been given a grant to help cover the costs of
research. The grant represents half of the expected cost of C$250,000. We believe
this development indicates that DehydraTECH™ has attracted academic and
institutional interest at the highest level. Furthermore, Lexaria gains access to stateof-
the-art research facilities that will allow the company to further explore the effects
of DehydraTECH™.
? A clinical study into the benefits of DehydraTECH™ performed by the University of
British Columbia (“UBC”) was planned to commence in November 2017, but has
been temporarily delayed. The study’s focus is upon the application of
DehydraTECH™ in the company’s TurboCBD product, and comparisons of
molecular performance against other CBD products. TurboCBD is one of the
company’s product offerings- a hemp oil capsule that incorporates Ginseng and
Ginkgo. Management have advised that the study may also identify other possible
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PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
combinations of CBD and other molecules (i.e. Viagra), which could lead to future
patent filings. The agreement was signed in August 2017.
? An in vivo edible nicotine study is expected to produce results in Q1 2018, related to
DehydraTECH’sTM ability to avoid the severe gastrointestinal distress currently
associated with nicotine introduction into the GI tract. This nicotine study will also
measure absorption rates and times. If successful, the company believes this study or
follow-ups to it, could provide the foundation for development of the world’s first
nicotine edible products.
? An in vitro study planned for Q1 2018 will analyze new topical skin formulations
Lexaria has created for improved delivery of cannabidiol (CBD) through the skin.
The company is exploring whether its absorption technology might have similar
penetration benefits in topical skin applications, potentially opening a new area of
applicability.
We see the continuous scientific research into DehydraTECH™ as adding value to the
company, solidifying the attractiveness of DehydraTECH™ as a product offering and
increasing forward demand. Research-backed evidence to support DehydraTECH’s™
benefits is likely to cement the potential value add of the delivery technology to companies
that are capable of applying it to their own products. The technology was originally
developed by the founders of PoViva Tea LLC (“PoViva”), who filed two initial U.S.
provisional patent application filings in 2014. Lexaria acquired 51% of the company in
November 2014, granting the company exclusive rights to PoViva’s intellectual property
which was eventually developed into DehydraTECH™. Consideration for this initial
acquisition was $50,000. Ownership of PoViva was expanded to 100% on October 31, 2017,
for total consideration of $70,000, a waiver on certain debts, and a 5%, 20-year royalty on
the net profits of ViPova (discussed below) product sales. It is unclear if any of the original
inventors are shareholders of the company.
Lexaria’s current business model is built around DehydraTECH™, with the majority of
revenues coming from technology out licensing.
1. DehydraTECH™ out-licensing: Lexaria licenses their proprietary delivery system to
third-party partners/ distributors. In return, the company charges a royalty fee
ranging between 5-10% of the partner’s gross sales. We look favorably upon this
business model as it spreads risk over multiple distribution partners, reducing
Lexaria’s exposure to the sales generation ability of a single partner. Furthermore, it
allows Lexaria to focus upon the continued development of their intellectual property
assets. The company recorded out licensing revenues of $45,809 in 2017, as well as
one licensee agreement signed May 14, 2016, for a two-year period.
2. Product sales and/or white-label relationships are currently a niche focus with
potential for longer term growth as organizations such as WADA (World Anti-
Doping Agency) and the WHO (World Health Organization) continue to recognize
the legitimacy of CBD. Lexaria currently offers their own CBD products. These
include ViPova premium CBD teas, coffee and hot chocolate, the Lexaria Energy
Foods product line of protein energy bars incorporating CBD, and TurboCBD
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? 2018 Fundamental Research Corp. “10+ Years of Bringing Undiscovered Investment Opportunities to the Forefront” www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
The
Opportunity
capsules that are formulated with ginkgo and ginseng. Sales of ViPova products
began in January 2015, and first sales of Lexaria Energy bars began in November
2015. TurboCBD products were introduced in March 2017. A manufacturing facility
was contracted in 2015 to produce the company’s products, and current disclosures
indicate that Lexaria will continue to contract facilities for manufacturing of their
products moving forward. For now, the company sells products via dedicated online
website stores, though they are actively seeking alternative distribution channels. The
company recorded product sales of $16,866 in FY2017.
At current, Lexaria’s intellectual property portfolio consists of 19 patent applications filed in
the U.S., international (under the Patent Cooperation Treaty), and national filings in 44
countries. Patent applications include “Methods” claims (which seek to patent a unique
production process) and “Composition of Matter” claims (which seek to patent a unique
intermixture of two or more ingredients). The company currently has a patent issued in the
U.S. and Australia under “Cannabinoid Infused Food and Beverage Compositions and
Methods of Use Thereof” which provides protection for the DehydraTECH™ technology as
applied to non-psychoactive cannabinoids such as CBD. As mentioned in the introduction,
the company has recently received a second patent from the U.S. Patent and Trademark
Office covering delivery of other molecules including: psychoactive cannabinoids, nicotine,
fat-soluble vitamins (including vitamins A, D, K, E), NSAIDs, and THC. Of interest, this
second patent also grants IP protection for the use of DehydraTECH™ technology in the
treatment of dozens of health conditions including cardiovascular disease, Parkinson’s,
Alzheimer’s, addictions and much more. Lexaria’s most recent patent pending application
was for the use of DehydraTECH™ technology for the delivery of phosphodiesterase
(PDE5) inhibitors. These are compounds with common trade names such as Viagra and
Cialis, and others.
As DehydraTECH™ is applicable to a number of different ingestible compounds, Lexaria is
able to target a myriad of industries that could potentially benefit from the use of
DehydraTECH™. Management has identified the cannabis, vitamin/ nutraceuticals,
NSAID, and nicotine spaces as potential target markets for out-licensing of their
DehydraTECH™ delivery system.
Cannabis
At current, there are three primary ways in which cannabis is ingested into the bloodstream:
1. Inhalation: the smoking of cannabis tends to yield the highest bioavailability, with a
2005 paper by I.J. McGilveray finding that THC bioavailability averaged 30% from
smoking. However, smoking or ingestion via combustion is considered to be harmful
to the lungs. In addition, the smoking of cannabis is highly visible and may carry a
social taboo depending on the regulatory and cultural climate.
2. Sub-lingual (under the tongue): exhibiting bioavailability ranging below that of
inhalation and above oral ingestion, sub-lingual consumption of cannabis is typically
considered to be sub-optimal in terms of taste.
3. Oral: low bioavailability that ranges between 4%-12% for THC according to the
same paper by I.J. McGilveray referred to above. The lower availability is due to the
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first pass liver effect mentioned above, which sees drug concentrations decrease as
they pass through the gastrointestinal tract.
Because DehydraTECH™ decreases the time of onset, increases bioavailability, and masks
unfavorable flavors, the company believes they can leverage DehydraTECH™ to capitalize
in opportunities in the cannabis sector. The company believes that their technology can
facilitate a move away from the smoking of cannabis to oral ingestion. We are particularly
bullish on the cannabis-infused products segment of cannabis market, as the segments
tends towards higher margins and receives less competition from the cannabis black
market.
Source: Marijuana Business Daily
The cannabis space is experiencing rapid growth, due to sweeping legalization movements
across North America that are leading a global loosening of cannabis regulations. In Canada,
where recreational use is set to become legal by July 2018, the cannabis industry has swelled
as investors see potential in the medical and recreational uses of the drug. Deloitte, in a
recent publication, estimated that the base market for legal recreational cannabis could start
at between C$4.9 billion and C$8.7 billion (depending on whether those who were likely to
consume given legalization were taken into account):
Deloitte estimates of Retail Cannabis Market in 2018, post-legalization
Source: Deloitte
However, the base market estimate is unlikely to capture the full economic impact of
legalizing recreational cannabis use, which Deloitte predicts could be as large as $22.6
billion once all the ancillary services needed to support a legalized recreational market are
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accounted for.
Deloitte estimates of Retail Cannabis Market plus Ancillary Market in 2018, post legalization
Source: Deloitte
According to Arcview Market Research, North American marijuana sales could grow at a
CAGR of 27% through to 2021. Arcview also estimates the +20% growth could continue
past 2021, as North American sales grow aided by continuing legalization throughout the
United States.
Source: Arcview Market Research
Nicotine
Though not the initial focus area for Lexaria’s operational activities moving into 2018,
DehydraTECH’s™ potential applications for the delivery of nicotine could open up a market
in excess of $700 billion in the near future. In an industry that is rapidly moving away from
the combusting/ inhalation of tobacco, we believe that DehydraTECH™ could potentially
prove to be a disruptive technology.
? On September 13, 2017, Phillip Morris International Inc. (NYSE: PM) announced
that it would put US$80 million per annum in to the Foundation for a Smoke Free
World.
? British-American Tobacco PLC. (LSE: BATS) has invested over US$1 billion in
“next-generation products” that include cigarette alternatives such as electronic
cigarettes (“E cigarettes”)/ vaporizing.
? The US Food and Drug Administration (“FDA”) announced in July 2017, that it was
contemplating the reduction of nicotine levels in cigarettes to non-addictive levels.
At current, there are no edible nicotine products commercially available, due to difficulties
in absorbing nicotine via the gastrointestinal tract. The result has been that the most popular
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alternatives to cigarette products has been alternative methods of smoking, such as electronic
E cigarettes/ vaporizing. An estimate by BIS research forecasted the global market for E
cigarettes and vaporizers at $50 billion by 2025, reflecting a CAGR of 22.36% since 2015.
Source: BIS Research Estimates
However, academics are mixed on the overall healthiness of E-cigarettes/ vaporizing. Many
prominent research entities, such as the UK Royal College of Physicians, encourage
cigarette smokers to switch to E cigarettes/ vaporizing as a less detrimental method to ingest
nicotine. However, a 2017 study by Qasim et. al. published in the Journal of the American
Heart Association found that E cigarettes are not emission-free and do in fact emit various
potentially harmful chemicals.
Top 10 Cigarette Makers by Volume
Source: Euromonitor International
According to Euromonitor International, the global retail value of cigarette sales in 2016
totaled $683.4 billion. This amounts to over 5.5 trillion cigarettes sold in 2016. As sales shift
from developed markets (where smoking prevalence is declining, and the regulatory
environment is restrictive) to developing markets (where the regulatory environment is lax),
the share of the market going to cigarettes is expected to decrease. In its place, alternative
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methods of nicotine ingestion, including E cigarettes and vaporizing, are expected to claim a
larger share of the market.
Cigarette Market Value Estimates
Source: Bloomberg/ Euromonitor International
Lexaria is currently planning in vivo studies for 2018 to test DehydraTECH’s™ ability to
facilitate nicotine passage via the gastrointestinal tract. If the company is able to return
favorable results and advance this research, we believe that DehydraTECH™ could attract
significant attention from players in the nicotine/ tobacco industry. The nicotine market,
which is currently in excess of $700 billion, is orders of magnitude larger than the current
cannabis industry.
NSAIDs
NSAIDs, including drugs such as Aspirin, Ibuprofen, Naproxen and Celecoxib, are the most
commonly used pain relief medicines in the world. The use of NSAIDs is particularly
prevalent in older populations, where an increase in the frequency of chronic pain disorders
such as arthritis increase the demand for NSAIDs. Though the use of NSAIDS as a pain
relief medicine is considered effective, they also carry numerous risks, including:
? Increased risk of heart failure: a study published in the British Medical Journal on
September 1, 2017, found that NSAIDs increase the risk of heart failure by 19%. The
study was based on a population across four European countries: Netherlands, Italy,
Germany, and the UK.
? Gastrointestinal damage: a well-known detrimental side effect of NSAIDs is the
increase in occurrences of stomach bleeding and ulcers. According to the American
Gastroenterological Association, half of all bleeding ulcers are caused by NSAIDs.
? Higher risk of renal failure: a 1991 research paper published in the Journal of
Clinical Pharmacology found that NSAIDs can induce renal abnormalities, the most
common of which was excess fluid retention.
The result has been that dependence and overuse of NSAIDs has led to significant NSAIDrelated
deaths- an article in the American Journal of Medicine estimated in a 1998 issue that
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there are at least 16,500 NSAID-related deaths per annum. Furthermore, on average over
100,000 patients are hospitalized per year due to NSAID-related gastrointestinal tract
complications. Despite the evidence pointing to significant health risks from NSAID usage,
consumption remains significant. Medscape, an online source of medical information for
physicians and patients, states that over 70 million NSAID prescriptions are written and over
40 billion doses are consumed annually in the U.S. alone.
Using DehydraTECH’s™ ability to bypass the liver and increase the bioavailability of
ingestible compounds, Lexaria believes that they may be able to improve the NSAID market
via three distinct avenues:
? Reduce the required dosage currently used in NSAID medications available today.
Though considered generally less harmful than opioids, NSAIDs still present a
degree of harm to patients. By improving bioavailability, patients can experience the
same desired effect whilst ingesting a reduced dosage.
? The company also believes that improved NSAID effectiveness could provide an
offset or alternative to the usage of opioids, which are another drug used for pain
relief, and considered particularly harmful to users due to the large amount of deaths
via respiratory depression. Successful application of DehydraTECH™ may increase
the pain relief effects of NSAIDs making them a viable alternative to Opioids.
Though more dangerous, opioids are considered more effective for severe pain
management.
? Via the negation of the first pass liver effect; DehydraTECH™ could potentially
reduce the overall API content in NSAIDs whilst also reducing input costs for
manufacturers. Lexaria’s ability to validate its theorized mode of action through the
lymphatic system instead of through liver metabolism, would have its most profound
effects in the delivery of NSAIDs.
Lexaria intends to test DehydraTECH™ for NSAIDs in 2018.
Vitamins
Generally divided into water soluble and fat-soluble categories, DehydraTECH™ facilitates
higher bioavailability than most existing delivery systems. According to management, fat
soluble vitamins, such as vitamins A, D, K and E, are generally more difficult to absorb in
the intestine. DehydraTECH™ provides an alternative delivery system that negates the need
for variants or additives in order to increase vitamin bioavailability in the gastrointestinal
tract. Like the company’s view for other ingestible compounds, Lexaria believes that their
proprietary delivery technology can add value to the vitamin industry by increasing
bioavailability, and subsequently reducing input costs.
Another large market opportunity that could potentially be open to Lexaria, the vitamin and
dietary supplements market is a sizeable industry. According to Euromonitor International,
the U.S. market alone was valued at $27.6 billion, and could grow to $31.7 billion by 2021.
The implied CAGR for U.S. vitamins and dietary supplement sales is 2.81% during this
period. Though this is significantly lower than the expected growth rate for the North
American cannabis market, the absolute size of the U.S. vitamin industry is still significantly
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Management
Overview
larger in absolute terms.
Source: Euromonitor International
The company’s board of directors has four members, two of which are independent. We
believe that a company’s board of directors should include independent or unrelated
directors who are free of any relationships or business that could materially interfere with
the director’s ability to act in the best interest of the company. As shown in the below table,
management and board own 24% of the outstanding shares, strongly aligning their interest
with investors.
Management and Board of Directors Share Ownership
Management & Board Shares % of Total
Chris Bunka - CEO, Chairman 14,114,923 19.97%
Nicholas Baxter - Director 330,000 0.47%
John Docherty - Director 2,127,000 3.03%
Ted McKechnie - President, Director 431,104 0.62%
Allan Spissinger - CFO 227,500 0.33%
17,230,527 24.42%
Source: FRC, Company
Brief biographies of the senior management and board members, as provided by the
company, follow:
Chris Bunka – CEO, Chairman
Chris has been Chairman of the Board and CEO since 2006 and was primarily responsible
for the corporate pivot from older business activities to bioscience. Chris is a serial
entrepreneur and has been involved in several private and public companies since the late
1980’s. He was well known for more than a decade as a part-time business commentator in
print and radio, as well as an author. He has extensive experience in the capital markets,
corporate governance, project acquisition and corporate finance. He is a named inventor on
some of Lexaria’s pending patents.
John Docherty – President, Director
John became President of Lexaria in the Spring of 2015 and joined its board of directors a
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year later. Mr. Docherty was former President and Chief Operating officer of Helix
BioPharma Corp. (TSX: HBP), where he led the company’s pharmaceutical development
programs for its plant and recombinantly derived therapeutic protein product candidates. Mr.
Docherty is a senior operations and management executive with over 20 years of experience
in the pharmaceutical and biopharmaceutical sectors. He has worked with large
multinational companies, as well as emerging private and publicly-traded start-ups. At
Helix, Mr. Docherty was also instrumental in the areas of investor and stakeholder relations,
capital raising, capital markets development, strategic partnering, regulatory authority
interactions and media relations, and he also served as a management member of its board of
directors.
Prior to this, Mr. Docherty was president and a board member of PharmaDerm Laboratories
Ltd., a Canadian drug delivery company that developed unique microencapsulation
formulation technologies for use with a range of active compounds. Mr. Docherty has also
held positions with companies such as Astra Pharma Inc., Nu-Pharm Inc. and
PriceWaterhouseCoopers’ former global pharmaceutical industry consulting practice. He is
a named inventor on issued and pending patents and he has a M.Sc. in Pharmacology and a
B.Sc. in Toxicology from the University of Toronto.
Allan Spissinger – CFO
Prior to concentrating on finance and accounting, Mr. Spissinger worked within the
Informational Technologies (IT) sector for over a decade; specializing in corporate IT
infrastructure and software development projects. Mr. Spissinger joined the audit and
assurance department at PricewaterhouseCoopers (PwC) where he obtained his Chartered
Professional Accountant (CPA) designation focusing on financial reporting and Sarbanes-
Oxley (SOX) compliance in the following sectors: resources, manufacturing and
technologies. Mr. Spissinger joined Lexaria in September 2014 as a corporate controller. His
positive mentorship, excellent communication and extensive leadership skills have enabled
him to successfully manage a variety of private businesses for over 20 years.
Nicholas Baxter – Director
Nick was appointed as a member on the board of directors of Lexaria Corp. in 2009. Nick
received a Bachelor of Science (Honours) from the University of Liverpool in 1975, and has
worked on oil & gas projects in many areas of the world. Since the 1980’s, he has worked
with companies in the public markets both in the U.K. and in Canada. Nick brings extensive
real-world experience as a board member.
Ted McKechnie – Director
Ted is a well-recognized thought leader in the Canadian food industry. In the past, Ted was
president of Maple Leaf Foods, an owner and senior executive at Humpty Dumpty and a
senior leader at Pepsi Co. After a distinguished career as an executive and marketer
specializing in food manufacturing, he now focuses on moving the Canadian food sector into
the future. Besides being the chairman of Food Starter’s board, Ted is also the
Chairman/CEO of The Davies Group and William Davies Consulting Inc. Ted is also a
chairman of the board for Advanced Technology for Food Manufacturing, and the Director
of Lexaria Bioscience Corporation. Ted is often called upon by think tanks, the government
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Financials
and industry leaders to offer insights on how to grow the food sector and add more value to
the Canadian economy.
For the year ended August 31, 2017, the company had revenues of $63,639, compared to
revenues of $40,718 reported at the end of same period in 2016. According to management,
the majority of revenues were from out-licensing of the company’s proprietary
DehydraTECH™ technology. As of August 31, 2017, the company had only one licensee,
who had entered into an agreement to license Lexaria’s technology for utilization in their
own cannabinoid products for a two-year period. Licensing revenues in 2017 were $45,809,
compared to 2016 licensing revenues of $7,500. However, sales of the company’s
proprietary line of products dropped from $31,743 in 2016, to $16,866 in 2017. The decline
in product sales was due largely to challenges in securing distribution opportunities,
production issues, and changes in payment processing. The segmented revenues for 2016
and 2017 are provided below:
Lexaria Segmented Revenues at Year End
Source: Company
The company believes that product sales will demonstrate growth moving forward, due to an
increasingly friendly regulatory environment and increased demand for cannabinoid infused
products. However, the company has indicated that moving forward, licensing revenues will
grow to represent a larger portion of Lexaria’s revenues. This is due to the expectation of
additional licensees utilizing Lexaria’s technology in their own product lines. We believe
that this is a reasonable expectation, as the cannabis-derived products segment is a highmargin
space that has multiple incumbents and will likely attract new entrants. By contrast,
the patented proprietary DehydraTECH™ is likely to remain a unique offering with few
substitutes in the short-term. Furthermore, the possibility of DehydraTECH™ to facilitate
cost savings for cannabis product providers indicates potentially outsized future demand for
out-licensing. The consolidated income statement for the company is provided below.
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STATEMENTS OF OPERATIONS
(in US$) - YE Aug 31st 2014 2015 2016 2017
Revenue 14,702 40,718 63,639
COGS 29,883 45,615 29,750
Gross Profit - (15,181) (4,897) 33,889
EXPENSES
SG&A Expense 1,291,301 1,530,450 1,212,436 1,835,429
Inventory Write-off 44,040 68,611
Share-based Compensation 97,002 256,051
Research & Development 146,466 9,024 54,185
EBITDA (1,388,303) (1,948,148) (1,270,397) (1,924,336)
Depreciation 619 1,488
Amortization
EBIT (1,388,303) (1,948,148) (1,271,016) (1,925,824)
Financing Costs 165,790 31,544 2,250 6,015
EBT (1,554,093) (1,979,692) (1,273,266) (1,931,839)
Non-Recurring Expenses
Taxes 5,248 3,578 3,983 -2,374
Net Profit (Loss) (1,559,341) (1,983,270) (1,277,249) (1,929,465)
Management reported that the increase in operating expenses over the period were
commensurate with the expansion of its business, with higher consulting fees and fees
associated with patent and trademark filings. The result has been negative EBITDA, EBIT,
EBT and net profit margins, despite revenue growth. Looking forward to 2018, management
have provided the following budgetary guidance for 2018:
Management’s Budgetary Guidance for 2018
Source: Company
Note that the company has raised sufficient working capital from recent financings to
execute the expected budget.
The following table provides a summary of Lexaria’s balance sheet:
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BALANCE SHEET
(in US$) - YE Aug 31st 2014 2015 2016 2017
ASSETS
CURRENT
Cash and Cash Equiv. 703,030 260,075 93,409 2,533,337
A/R 97,003 31,382 131,083 45,293
Inventory 167,986 134,724 67,174
Assets Held-For-Sale 1,400,000
Prepaid Expenses 367,441 215,290 150,950 149,691
Total Current Assets 2,567,474 674,733 510,166 2,795,495
Patent 36,989 53,997 62,827
Equipment 2,475 1,856
Medical Marijuana Investments 67,662
Total Assets 2,635,136 711,722 566,638 2,860,178
LIABILITIES
CURRENT
A/P 93,553 33,073 90,010 32,574
Loans Payable 776,936
Share Subscription Receivable 45,780
Unearned Revenue 12,500 17,083
Due to Related Parties 1,769 22,052 331,371 42,690
Total Current Liabilities 918,038 55,125 433,881 92,347
Convertible Debt 45,000
Total Liabilities 918,038 55,125 478,881 92,347
SHAREHOLDERS EQUITY
Share Capital 34,249 43,838 51,288 67,976
Additional Paid-In Capital 10,033,438 10,814,460 11,515,419 16,108,270
Shares to be Returned -35,200
Accumulated Deficit -8,315,389 -10,085,889 -11,300,662 -13,169,939
Non-Controlling Interest -115,812 -178,288 -238,476
Total shareholders’ equity (deficiency) 1,717,098 656,597 87,757 2 ,767,831
Total Liabilities and Shareholders Equity 2,635,136 711,722 566,638 2,860,178
Source: Company
At the end of 2017, the company had a cash position of $2.53 million and working capital of
$2.7 million, as well as assets totaling $22.5 million and zero debt. The below table outlines
the company’s liquidity and capital structure.
(in US$) - YE Aug 31st
Liquidity & Capital Structure 2014 2015 2016 2017
Cash 703,030 260,075 93,409 2,533,337
Working Capital 1,649,436 619,608 7 6,285 2 ,703,148
Current Ratio 2.80 12.24 1.18 30.27
LT Debt 0 0 45,000 0
Total Debt 776,936 0 45,000 0
LT Debt / Capital - - 0 .34 -
Total Debt / Capital 31.15% 0.00% 33.90% 0.00%
EBIT Interest Coverage -8.37 -11.75 -40.29 -855.92
Total Invested Capital 1,791,004 396,522 3 9,348 2 34,494
Source: Company Data
Below is a summary of the firm’s cash flows. Note that the company’s net cashflows have
increased significantly in 2017, due to a significant increase in cashflows from financing
activities:
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Valuation
Summary of Cash Flows
($, mm) 2014 2015 2016 2017
Operating -$0.52 -$1.50 -$0.66 -$1.55
Investing -$0.08 $0.68 -$0.02 -$0.01
Financing $1.23 $0.37 $0.51 $4.00
Effects of Exchange Rate $0.00 $0.00 $0.00 $0.00
Net $0.64 -$0.44 -$0.17 $2.44
Free Cash Flows to Firm (FCF) -$0.59 -$0.82 -$0.68 -$1.56
Source: Company Data
Stock options and warrants: we estimate that the company has 3.38 million stock options
(weighted average exercise price of $0.19), and 7.14 million warrants (weighted average
exercise price of $0.31) outstanding. All options and warrants are currently in the money.
The company has the potential to raise up to $2.82 million if all the 'in-the-money' options
and warrants are exercised.
Consolidated Revenue Forecasts
STATEMENTS OF OPERATIONS
(in US$) - YE Aug 31st 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E
Revenue 3,752,967 16,050,545 36,623,975 67,739,393 102,970,788 141,988,473 181,273,500 226,134,370
COGS 225,597 992,270 2,779,911 4,857,474 7,427,821 10,632,310 14,539,649 19,794,479
Gross Profit 3,527,370 15,058,275 33,844,064 62,881,919 95,542,967 131,356,163 166,733,851 206,339,891
EXPENSES
Operating Expenses 3,075,297 4,575,055 6,929,397 10,367,639 14,250,149 18,547,224 22,910,565 27,874,973
EBITDA 452,073 10,483,221 26,914,666 52,514,280 81,292,818 112,808,939 143,823,286 178,464,918
Depreciation 742 1,931 2,940 3,903 4,908 6,024 7,310 8,821
Amortization
EBIT 451,331 10,481,290 26,911,726 52,510,377 81,287,910 112,802,914 143,815,976 178,456,097
Financing Costs
EBT 451,331 10,481,290 26,911,726 52,510,377 81,287,910 112,802,914 143,815,976 178,456,097
Non-Recurring Expenses
Taxes 117,346 2,725,135 6,997,049 13,652,698 21,134,857 29,328,758 37,392,154 46,398,585
Net Profit (Loss) 333,985 7,756,155 19,914,677 38,857,679 60,153,053 83,474,156 106,423,822 132,057,512
Source: FRC
? To reflect uncertainty in future licensing revenues from non-cannabis markets (as
DehydraTECH™ has yet to be tested for products in these markets), we include 50%
of our forecasted nicotine, NSAID, and vitamin licensing revenues. 100% of the
forecasted cannabis revenues are considered.
? Gross margins for the company’s out-licensing segment, and product segment, of
95% and 50%, respectively.
The assumptions for the revenue forecasts by market, are given below. These lines are
amalgamated into the above consolidated revenue forecasts.
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Cannabis
2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E
CBD Product Revenue $ 84,330 $ 4 21,650 $ 2,108,250 $ 3,267,788 $ 5 ,065,071 $ 7,850,859 $ 12,168,832 $ 1 8,861,690
CBD Product COGS $ 42,165 $ 2 10,825 $ 1,054,125 $ 1,633,894 $ 2 ,532,535 $ 3,925,430 $ 6,084,416 $ 9 ,430,845
Cannabis Market Size $ 12,228,790,000 $ 1 5,416,835,553 $ 19,436,004,582 $ 24,502,970,976 $ 2 9,403,565,171 $ 35,284,278,206 $ 42,341,133,847 $ 5 0,809,360,616
Edibles Market $ 1,467,454,800 $ 1 ,850,020,266 $ 2,332,320,550 $ 2,940,356,517 $ 3 ,528,427,821 $ 4,234,113,385 $ 5,080,936,062 $ 6 ,097,123,274
Lexaria's Market Share (Cannabis) $ 73,372,740 $ 1 85,002,027 $ 349,848,082 $ 588,071,303 $ 7 05,685,564 $ 846,822,677 $ 1,016,187,212 $ 1 ,219,424,655
Lexaria Royalty Sales (Cannabis) $ 3,668,637 $ 9 ,250,101 $ 17,492,404 $ 2 9,403,565 $ 3 5,284,278 $ 42,341,134 $ 50,809,361 $ 6 0,971,233
Lexaria Royalty COGS (Cannabis) $ 183,432 $ 4 62,505 $ 874,620 $ 1,470,178 $ 1 ,764,214 $ 2,117,057 $ 2,540,468 $ 3 ,048,562
Total Revenues $ 3,752,967 $ 9 ,671,751 $ 19,600,654 $ 3 2,671,353 $ 4 0,349,349 $ 50,191,993 $ 62,978,193 $ 7 9,832,923
COGS $ 225,597 $ 6 73,330 $ 1,928,745 $ 3,104,072 $ 4 ,296,749 $ 6,042,486 $ 8,624,884 $ 1 2,479,407
Source: FRC
Our assumptions for Lexaria’s forecasted revenues from the cannabis space include:
? A North American cannabis market worth $12.2 billion in 2018, growing at a CAGR
of 26.07% till 2021 to reach $24.5 billion. This is based on a recent estimate by BDS
Analytics and Arcview Market Research group. We forecast the industry growth rate
will slow to 20% from 2021 onwards and a terminal growth rate of 3% by 2025.
? Management expects that Lexaria will provide licenses to cannabis companies with
dominant market share. In our models, this represents that the market share available
to Lexaria is 20% of the North American cannabis edibles market. However, we
believe that it will take time for the industry to recognize and adopt Lexaria’s
technology, and initial market share available is lower than 20% and grows to this
level over time.
? We forecast that the edibles market will be equivalent to 12% of the wider North
American cannabis industry. In Colorado, Washington, and Oregon, where adult use
is legal at the state level, BDS analytics have reported edibles market share of 12%.
? Licensing revenues equal to 5% of Lexaria’s market share. This is based on a royalty
of 5%.
Nicotine
2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E
Nicotine Market Size $ 99,088,060,000 $ 102,060,701,800 $ 105,122,522,854 $ 108,276,198,540 $ 111,524,484,496 $ 114,870,219,031 $ 118,316,325,602 $ 121,865,815,370
Lexaria's Market Share (Nicotine) $ 255,151,755 $ 525,612,614 $ 1,082,761,985 $ 1,672,867,267 $ 2,297,404,381 $ 2,957,908,140 $ 3,655,974,461
Lexaria Royalty Sales (Nicotine) $ 12,757,588 $ 26,280,631 $ 54,138,099 $ 83,643,363 $ 114,870,219 $ 147,895,407 $ 182,798,723
Lexaria Royalty COGS (Nicotine) $ 637,879 $ 1,314,032 $ 2,706,905 $ 4,182,168 $ 5,743,511 $ 7,394,770 $ 9,139,936
Source: FRC
Our assumptions for Lexaria’s forecasted revenues from the nicotine space include:
? A U.S. tobacco/ nicotine market in 2016 valued at $93.4 billion. As the nicotine
market is a mature market, we assign a long-term growth rate of 3%. We include
only the U.S. nicotine market, as this reflect the company’s current patent protection.
We do not include provisions for the issuance of similar patents globally to maintain
conservatism.
? Licensing revenues equal to 5% of Lexaria’s market share. This is based on a royalty
of 5%.
? Lexaria’s entry to the market in 2019. The company has a planned study for 2018, if
the results are positive, we believe that they may be able to enter the market the
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following year.
NSAIDs
2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E
NSAIDs Market Size $ 60,000,000,000 $ 6 1,800,000,000 $ 63,654,000,000 $ 65,563,620,000 $ 67,530,528,600 $ 69,556,444,458 $ 71,643,137,792 $ 73,792,431,925
Lexaria's Market Share (NSAIDS) $ 3 37,652,643 $ 695,564,445 $ 1,074,647,067 $ 1,475,848,639
Lexaria Royalty Sales (NSAIDS) $ 16,882,632 $ 34,778,222 $ 53,732,353 $ 73,792,432
Lexaria Royalty COGS (NSAIDS) $ 8 44,132 $ 1,738,911 $ 2,686,618 $ 3 ,689,622
Source: FRC
Our assumptions for Lexaria’s forecasted revenues from the NSAID space include:
? As per an Allied Market research report published in 2015, we estimate the value of
the U.S. NSAIDs market at $60 billion. As the NSAID market is a mature market,
we assign a long-term growth rate of 3%.
? Licensing revenues equal to 5% of Lexaria’s market share. This is based on a royalty
of 5%.
? Lexaria’s entrance to the market in 2022. The company has a planned study for 2018,
but we believe that the NSAID market is not an immediate focus, and management
have advised that application of their technology to NSAIDs will likely encounter
greater regulatory review.
Vitamins
2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E
Vitamins Market Size $ 29,280,840,000 $ 3 0,159,265,200 $ 31,064,043,156 $ 31,995,964,451 $ 32,955,843,384 $ 33,944,518,686 $ 34,962,854,246 $ 36,011,739,874
Lexaria's Market Share (Vitamins) $ 155,320,216 $ 319,959,645 $ 494,337,651 $ 678,890,374 $ 699,257,085 $ 7 20,234,797
Lexaria Royalty Sales (Vitamins) $ 7,766,011 $ 15,997,982 $ 24,716,883 $ 33,944,519 $ 34,962,854 $ 36,011,740
Lexaria Royalty COGS (Vitamins) $ 388,301 $ 799,899 $ 1,235,844 $ 1,697,226 $ 1,748,143 $ 1,800,587
Source: FRC
Our assumptions for Lexaria’s forecasted revenues from the vitamin space include:
? As mentioned earlier, we estimate the U.S. vitamins market was valued at $27.6
billion in 2016. As the vitamin market is a mature market, we assign a long-term
growth rate of 3%.
? Licensing revenues equal to 5% of Lexaria’s market share. This is based on a royalty
of 5%.
? Lexaria’s entrance to the market in 2020. The company has a planned study for 2018,
but we believe that the vitamins market is not an immediate focus, and so we
conservatively delay market entrance to 2020.
Discounted Cash Flow Valuation
Our DCF Valuation on Lexaria’s shares is $4.64 per share.
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Risks
DCF Model 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E Terminal
EBIT(1-tax) $ 3 33,985 $ 7 ,756,155 $ 19,914,677 $ 38,857,679 $ 6 0,153,053 $ 83,474,156 $ 106,423,822 $ 132,057,512
Depreciation $ 7 42 $ 1 ,931 $ 2,940 $ 3,903 $ 4 ,908 $ 6,024 $ 7,310 $ 8,821
Investment in WC $ -532,399 $ -2,450,312 $ -4,273,242 $ -6,247,235 $ -7,148,701 $ -6,512,570 $ -8,605,631 $ -11,403,219
CFO $ -197,671 $ 5 ,307,773 $ 15,644,376 $ 32,614,347 $ 5 3,009,261 $ 76,967,610 $ 97,825,501 $ 120,663,114
CAPEX $ -3,713 $ -4,455 $ -5,346 $ -6,416 $ -7,699 $ -9,239 $ -11,086 $ -13,304
FCF $ -201,384 $ 5 ,303,318 $ 15,639,029 $ 32,607,931 $ 5 3,001,562 $ 76,958,372 $ 97,814,415 $ 120,649,810 $ 124,269,304
PV $ -170,665 $ 3 ,808,760 $ 9,518,396 $ 16,818,808 $ 2 3,167,471 $ 28,507,808 $ 30,706,393 $ 32,097,454 $ 220,402,517
Discount Rate 18%
Terminal Growth Rate 3%
Total PV $ 364,856,943
Cash - Debt $ 2,533,337
Equity Value $ 367,390,280
Shares O/S (dil) 78,557,536
Fair Value $ 4.64
For our discount rate, we utilized a WACC of 18%. This is based on the 5-year average
ROE and debt-to-capital structure exhibited in the Pharmaceuticals, Biotech and Life
Sciences industry. We also used a return on debt that reflects the average rate of 10-year
corporate debt yields, as reported by Moody’s. An additional discretionary risk premium has
been included to reflect uncertainty of the company’s forward operations.
WACC
Debt-to-Capital Ratio 18%
Equity-to-Capital Ratio 82%
5-year average ROE 11%
10-year average Baa yield 6%
After-tax ROD 4%
Un-adjusted WACC 10%
Discretionary Risk Premium 8%
WACC 18%
Based on our review of the company’s business model, the quality of the management
team and their execution plan, and our valuation models, we are initiating coverage on
Lexaria with a BUY rating and a fair value estimate of $4.64 per share. We believe this
valuation reflects the potential upside of the company whilst reflecting the potential risks of
the company’s business model. We encourage investors to monitor the company’s research
and development progress, as confirmation of DehydraTECH’s™ successful (or
unsuccessful) application to Lexaria’s targeted APIs will materially impact their valuation as
presented in this report.
Risks
We believe the company is exposed to the following risks (list is non-exhaustive):
? Possible inability to apply Lexaria’s delivery technology to any (or all) of the
proposed market segments mentioned above will materially impact the company’s
valuation.
? Lexaria’s patent does not guarantee international protection of their technologyfurther
patents from relevant authorities will be needed to protect the company’s
technology in other jurisdictions.
? The cannabis regulatory environment in North America exhibits high levels of
uncertainty and is open to external interference beyond Lexaria’s control. Adverse
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political or regulatory changes may materially impact the Company’s valuation.
? The company has yet to exhibit a track record of profitability, despite operations
generating revenue.
? Exchange rate risk.
? Access to capital and share dilution.
We are initiating coverage with a risk rating of 4 (Speculative).
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Fundamental Research Corp. Equity Rating Scale:
Buy – Annual expected rate of return exceeds 12% or the expected return is commensurate with risk
Hold – Annual expected rate of return is between 5% and 12%
Sell – Annual expected rate of return is below 5% or the expected return is not commensurate with risk
Suspended or Rating N/A— Coverage and ratings suspended until more information can be obtained from the company regarding recent events.
Fundamental Research Corp. Risk Rating Scale:
1 (Low Risk) - The company operates in an industry where it has a strong position (for example a monopoly, high market share etc.) or operates in a regulated industry.
The future outlook is stable or positive for the industry. The company generates positive free cash flow and has a history of profitability. The capital structure is
conservative with little or no debt.
2 (Below Average Risk) - The company operates in an industry where the fundamentals and outlook are positive. The industry and company are relatively less sensitive
to systematic risk than companies with a Risk Rating of 3. The company has a history of profitability and has demonstrated its ability to generate positive free cash
flows (though current free cash flow may be negative due to capital investment). The company’s capital structure is conservative with little to modest use of debt.
3 (Average Risk) - The company operates in an industry that has average sensitivity to systematic risk. The industry may be cyclical. Profits and cash flow are sensitive
to economic factors although the company has demonstrated its ability to generate positive earnings and cash flow. Debt use is in line with industry averages, and
coverage ratios are sufficient.
4 (Speculative) - The company has little or no history of generating earnings or cash flow. Debt use is higher. These companies may be in start-up mode or in a
turnaround situation. These companies should be considered speculative.
5 (Highly Speculative) - The company has no history of generating earnings or cash flow. They may operate in a new industry with new, and unproven products.
Products may be at the development stage, testing, or seeking regulatory approval. These companies may run into liquidity issues, and may rely on external funding.
These stocks are considered highly speculative.
Disclaimers and Disclosure
The opinions expressed in this report are the true opinions of the analyst about this company and industry. Any “forward looking statements” are our best estimates and
opinions based upon information that is publicly available and that we believe to be correct, but we have not independently verified with respect to truth or correctness.
There is no guarantee that our forecasts will materialize. Actual results will likely vary. The analyst and Fundamental Research Corp. “FRC” does not own any shares
of the subject company, does not make a market or offer shares for sale of the subject company, and does not have any investment banking business with the subject
company. Fees were paid by Lexaria to FRC. The purpose of the fee is to subsidize the high costs of research and monitoring. FRC takes steps to ensure
independence including setting fees in advance and utilizing analysts who must abide by CFA Institute Code of Ethics and Standards of Professional Conduct.
Additionally, analysts may not trade in any security under coverage. Our full editorial control of all research, timing of release of the reports, and release of liability for
negative reports are protected contractually. To further ensure independence, Lexaria has agreed to a minimum coverage term including an initial report and three
updates. Coverage cannot be unilaterally terminated. Distribution procedure: our reports are distributed first to our web-based subscribers on the date shown on this
report then made available to delayed access users through various other channels for a limited time.
The distribution of FRC’s ratings are as follows: BUY (73%), HOLD (6%), SELL / SUSPEND (21%).
To subscribe for real-time access to research, visit http://www.researchfrc.com/subscribe.php for subscription options.
This report contains "forward looking" statements. Forward-looking statements regarding the Company and/or stock’s performance inherently involve risks and
uncertainties that could cause actual results to differ from such forward-looking statements. Factors that would cause or contribute to such differences include, but are
not limited to, continued acceptance of the Company's products/services in the marketplace; acceptance in the marketplace of the Company's new product lines/services;
competitive factors; new product/service introductions by others; technological changes; dependence on suppliers; systematic market risks and other risks discussed in
the Company's periodic report filings, including interim reports, annual reports, and annual information forms filed with the various securities regulators. By making
these forward looking statements, Fundamental Research Corp. and the analyst/author of this report undertakes no obligation to update these statements for revisions or
changes after the date of this report. A report initiating coverage will most often be updated quarterly while a report issuing a rating may have no further or less frequent
updates because the subject company is likely to be in earlier stages where nothing material may occur quarter to quarter.
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60% needed to override a presidential veto, I believe.