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Gage Growth Corp. (CSE: GAGE) (OTC: GAEGF)

Gage Growth Corp. (CSE: GAGE) (OTC: GAEGF) is a leading high-quality craft cannabis brand and operator in Michigan. The company is currently focused exclusively on the Michigan market, working with the declared goal of building the fastest growing cannabis brand in the state.

One of the reasons Gage targeted Michigan as its location of choice is due to the state’s fast-growing legal cannabis market and consumption habits amongst consumers. In 2018, Michigan became the 10th state to legalize the recreational use of cannabis. In light of such favorable market dynamics, Gage opened its first medical provisioning center (dispensary) shortly after, in 2019. The company now has 13 medical or adult-use locations open or in the works, with the goal of opening 20 or more locations by year-end. Gage’s current portfolio features 19 Class C cultivation licenses across three cultivation assets and three processing licenses.

Current Asset and Brand Portfolio

Gage’s current brand portfolio consists of five unique product classes: flower products, edibles, hardware, concentrates and vape pens/disposables.

The company has already created relationships with a wealth of exclusive brand partners, including some of the most illustrious brands in the country. Notably, Gage’s exclusive partnership with Cookies, one of the most well-respected cannabis lifestyle brands in the United States, illustrates Gage’s operational prowess in cultivating quality flower and operating its branded retail stores. Today, Gage operates two Cookies branded stores, including the 8 Mile Cookies location in Detroit and the Kalamazoo location.

Committed to providing only products of the highest quality, Gage uses small-batch, indoor-grown, high-quality cannabis that is hand-trimmed and hung to dry. Gage ensures that every gram of cannabis sold is consistently of the highest quality and offers a superb customer experience.

The company currently has three cultivation assets, in addition to a number of contract grow agreements. Gage-operated cultivation facilities are located at Monitor Township (expansion planned), Harrison Township and Warren.

Its operating dispensaries include Ferndale (adult-use), Adrian (adult-use), Lansing (adult-use), Traverse City (medical), Detroit (Cookies establishment – medical), Grand Rapids (adult-use), Kalamazoo (Cookies establishment – adult-use), Battle Creek (medical) and Jackson (medical).

Financial Highlights

In Q1 2021, the company posted record revenue of $17.6 million, an increase of 219.4% year-over-year and 67.9% quarter-over-quarter.

This increase reflects the company’s significant expansion efforts since the beginning of 2020. Starting with only 200 pounds per month, Gage now estimates its monthly cultivation capacity at more than 1,500 pounds by July/August and 7,000 pounds by year-end.

This increase in cultivation capacity has helped Gage promote rapid growth through its retail locations. Average basket size, which refers to the retail value of each consumer transaction, is estimated at $85 for the Michigan cannabis industry. In 2020, Gage’s average basket size was $164, almost double the state average.

Michigan Medical and Adult-Use Marijuana Market Size

The recreational marijuana market in Michigan is expected to grow significantly. Approximately 3% of Michigan’s residents are medical marijuana cardholders – a much higher rate than many other medical markets – leading Brightfield to predict that the state’s recreational market could triple in size between 2020 and 2023 (https://ibn.fm/9cO0h).

Michigan saw an exponential growth in sales in 2020 and thus far in 2021. In April 2021 alone, $154 million in cannabis sales occurred within the state. That effectively ranks Michigan as the third-largest cannabis market based on run-rate. The Marijuana Regulatory Agency estimates that the potential market size for cannabis within the state is around $3 billion.

Neither Gage nor the state has seen any significant drop in sales in the wake of the COVID-19 pandemic. On the contrary, demand has continued to grow steadily, as dispensaries were among the few businesses deemed essential and permitted to operate throughout the shutdown. All Gage and Cookies locations have remained operational, offering curbside pickup.

Management Team

Bruce Linton is the Chairman of Gage Growth. He joined the company in 2019 and is the founder and former CEO and Chairman of Canopy Growth Corp. (TSX: WEED) (NASDAQ: CGC). Mr. Linton has extensive executive and board experience in a variety of industries and is considered to be a pioneer in the global cannabis industry. He provides incomparable support to the company’s strategic and capital markets efforts.

Michael Hermiz is the Co-Founder and Director of Gage Growth, and he is also the founder of a federally licensed producer in Canada. Mr. Hermiz has had great success in various industries, including real estate, mortgage, telecommunications, import, export and many others.

Fabian Monaco is Gage’s CEO and Director. He previously worked at XIB Financial Inc., GMP Securities L.P. and Scotiabank. In addition to his vast investment banking and legal background, Mr. Monaco has 10+ years of capital markets experience. His advisory experience in the cannabis industry is also extensive.

Dr. Rana Harb is a Director of Gage Growth. She has 25+ years of experience handling research, compliance, quality assurance and regulatory affairs. A significant portion of her regulatory and compliance history is in the cannabis industry. Dr. Harb has worked for many pharmaceutical companies worldwide, dealing with regulatory agencies such as the FDA, the EMA and Health Canada.

Mike Finos is the President (USA) and a Director of Gage Growth. He is the former COO of Horizon Global, the world’s number one towing accessories company. He has experience with start-ups, M&A and business integration with both private and publicly traded companies. With 20+ years of operational leadership expertise, Mr. Finos has extensive knowledge relating to supply chain logistics, manufacturing and information technology.

David Watza is the Chief Financial Officer of Gage Growth. He is an experienced C-Suite executive and former CFO and board member of Perceptron Inc. (NASDAQ: PRCP). Mr. Watza has 30+ years of experience in finance, accounting, and operations, including time as a public company CFO.

Investment Considerations
  • Gage Growth is one of the leading vertically integrated operators in the cannabis industry.
  • Its current focus is the Michigan market, which is valued at an estimated $3 billion and recorded $154 million in cannabis sales in April 2021, which, when annualized, represents $1.85 billion.
  • The company currently has nine dispensaries across Michigan, with the potential to have 90% of the state’s population within a one-hour drive as it continues to expand its dispensary network, offering a wide range of products and even home delivery options.
  • Gage is planning to expand its cultivation facility in Monitor Township and open additional provisioning centers (dispensaries) in Michigan throughout 2021. Gage is planning to open 20 or more locations by the end of 2021.
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