3 Top Marijuana Stocks to Buy After Canada’s Legalization of Recreational Marijuana

Canada now stands as the first major economic power to legalize the use of recreational marijuana. On Tuesday, the Canadian Senate overwhelmingly passed bill C-45, also known as the Cannabis Act. Although it will take provinces and territories another eight to 12 weeks to prepare, a sizable new cannabis market will soon open in the country.



Most Canadian marijuana stocks moved higher after the legislative milestone, but which stocks are the best picks for investors looking to profit from the anticipated marijuana market boom? Here’s why Canopy Growth Corporation (NYSE: CGC) , Aphria (NASDAQOTH: APHQF) , and Aurora Cannabis (NASDAQOTH: ACBFF) look like top marijuana stocks to buy after Canada’s historic vote.

Canopy Growth Corporation

Capitalizing on the coming recreational marijuana market requires two key ingredients: plenty of production capacity and a strong retail presence. Canopy Growth has both.

Canopy currently operates facilities with over 2.4 million square feet of growing space. However, the company is expanding its operations to include more than 5 million square feet of growing space by next year. Based on some back-of-the-envelope calculations, Canopy Growth should be able to produce more than 780,000 kilograms of cannabis each year at its projected full capacity.

There are 10 provinces in Canada and three territories. Canopy Growth already has supply agreements for recreational marijuana with three of them and has announced retail sites in Saskatchewan and Newfoundland and Labrador.

Although Canopy Growth claims the highest market cap of any marijuana stock, it actually ranks as one of the best bargains in terms of cost per kilogram of production capacity. In addition, the company’s partnership with large alcoholic-beverage maker Constellation Brands  gives it access to resources that other marijuana companies don’t have.

Aphria

Aphria appears to be in good shape to compete in the recreational market, as well. Although the company currently can grow only around 35,000 kilograms of cannabis per year, Aphria is on target to have an annual production capacity of 255,000 kilograms by early 2019.

The company also has solidified its retail strategy by forging a key distribution partnership. In May, Aphria selected Southern Glazer as its exclusive distribution partner for recreational marijuana. Southern Glazer is the largest wine and spirits distributor in North America and has operations in all of Canada’s provinces.

Another plus for Aphria is its low cost structure. The company already is able to produce cannabis at less than 1 Canadian dollar per gram. Aphria CEO Vic Neufield has predicted that the ability to operate at low costs could be tremendously important by late 2019 as supply catches up with demand in the Canadian recreational marijuana market.

 

Aurora Cannabis

Aurora Cannabis has been more aggressive than any other marijuana grower in Canada at rapidly expanding capacity through acquisitions. The company has bought CanniMed Therapeutics and MedReleaf  — the third-largest Canadian marijuana grower — over the last few months.

Although some have criticized Aurora’s acquisition strategy, the company’s Chief Corporate Officer Cam Battley recently defended the approach of rapidly scooping up other players. Battley stated that Aurora was in the middle of a “land grab” to establish integrated operations as quickly as it could to compete more effectively.

Thanks in large part to the MedReleaf deal, Aurora will be on course to fund annual production capacity of more than 570,000 kilograms. The company also has secured agreements with smaller marijuana growers to lock in additional capacity.

Aurora’s efforts to prepare for the retail marijuana market include partnering with and buying a stake in Alcanna , which operates 229 liquor stores in Alberta. The company also has signed distribution agreements with leading Canadian pharmacy chains Pharmasave and Shoppers Drug Mart.

But aren’t these stocks too expensive?

Canopy Growth’s market cap stands at nearly $7 billion. Aphria and Aurora Cannabis claim market caps of around $2 billion and $4.3 billion, respectively. Are these marijuana stocks simply too expensive to buy? Not necessarily.

The Canadian annual recreational marijuana market is likely to be in the ballpark of CA$7 billion. Adding the potential for the medical marijuana market in the country brings the total market size to more than CA$8 billion. That’s not enough to justify the market caps of these top marijuana stocks — but the global opportunity is.

Currently, 22 countries other than Canada have active medical marijuana laws. Global demand for medical marijuana could create a market as much as eight times greater than the Canadian cannabis market. And that’s not including the possibility that other countries legalize medical marijuana or that the U.S. could change federal laws to allow states to legalize medical or recreational marijuana without fear of interference.

Granted, it could take longer than expected for these global markets to develop. Even top marijuana stocks could suffer if the delays are too long. Over the long run, though, I think that Canopy Growth, Aphria, and Aurora Cannabis should prosper from the loosening of restrictions on marijuana use.


Here at Dollar Destruction, we endeavor to bring to you the latest, most important news from around the globe. We scan the web looking for the most valuable content and dish it right up for you! The content of this article was provided by the source referenced. Dollar Destruction does not endorse and is not responsible for or liable for any content, accuracy, quality, advertising, products or other materials on this page. As always, we encourage you to perform your own research!
Source
Author: Keith Speights
Image Credit

Two Canadian Companies Are Merging in the Biggest Weed Deal Ever

  • Canada’s Aurora Cannabis to buy MedReleaf in all-stock merger
  • Industry consolidation heats up as Canadian legalisation looms

Consolidation in Canada’s nascent marijuana industry is heating up, with two of the largest players agreeing to the biggest merger seen so far in the sector.

Aurora Cannabis Inc. agreed to buy rival MedReleaf Corp. for about C$2.9 billion ($2.3 billion) in stock, the companies said Monday in a statement. The deal will create a producer with the capacity to grow 570,000 kilos (1.26 million pounds) a year of cannabis at nine facilities in Canada and two in Denmark. The merged company will also have distribution networks at home as well as in Europe, South America and Australia.

Canadian marijuana growers are racing to gain market share as Prime Minister Justin Trudeau pushes to legalise recreational use this year. Aurora is leading the effort to consolidate the industry, having acquired more than 10 targets in the past two years.

Aurora Chief Executive Officer Terry Booth said there will be more consolidation in the industry.

“We’re not done,” he told reporters in Toronto. “Over the next couple weeks you’ll see some more activity from Aurora,” but nothing on the scale of the MedReleaf deal, he added.

Chief Corporate Officer Cam Battley said Aurora’s goal is to “become nothing less than the world’s largest cannabis company.” Aurora sees particular growth opportunities in the European Union.

Aurora’s stock rose 1 percent to C$8.15 at 0:40 a.m. in Toronto, while MedReleaf’s gained 2.6 percent to C$25.44.



Global Growth

“The likelihood of another bidder emerging with a superior offer is low in our view, given the size of the transaction and the overwhelming support of MedReleaf’s shareholders,” GMP Securities analyst Martin Landry said in a note. He added Aurora may find it challenging to swallow another large deal so soon after its acquisition of CanniMed, which closed earlier in May.

In another Canadian deal announced Monday, Canopy Growth Corp. said it agreed to buy the 33 percent stake in greenhouse operator BC Tweed Joint Venture Inc. that it doesn’t already own. Canopy said separately it plans to list on the New York Stock Exchange.

Weed companies are also seeking to capitalise on investor enthusiasm. Share prices for producers have soared over the past year: the Bloomberg Intelligence Canada Cannabis Competitive Peers Index, which comprises 54 companies, has almost doubled in the period and has a market capitalisation of $65.4 billion.

For the growers that emerge as industry leaders, the prize isn’t just a legal Canadian market — where sales could reach C$6 billion by 2021, according to a report from Canaccord Genuity Corp. Governments in other parts of the world, particularly Europe, are heading in a similar direction to Ottawa, and several Canadian growers have been keen to advertise their ambitions to grow and distribute cannabis overseas.

Monday’s deal eclipses what had previously been the industry’s biggest deal: Edmonton-based Aurora’s C$775 million acquisition of CanniMed Therapeutics Inc., which was completed earlier this month. Aphria Inc., another Canadian grower, bought Nuuvera Inc. for about C$444 million in March.

Many Canadian growers eke out little or no profit as they push to expand production and revenue. Aurora, which has a market capitalisation of C$4.59 billion, had a loss of C$13 million on sales of C$18.1 million in the year through June 2017.

According to its most recent annual income statement, Markham, Ontario-based MedReleaf had a net profit of C$11 million on revenues of C$40.3 million in the year through March 2017. Aurora’s takeover values MedReleaf at about 163 times earnings before interest, taxes, depreciation and amortisation for that period, according to data compiled by Bloomberg.

  • MedReleaf holders will receive 3.575 shares of Aurora for each share they own. Based on May 11 closing prices, that values MedReleaf at C$28.85 per share, or a 16 percent takeover premium.
  • After completion of the deal, existing Aurora and MedReleaf holders will own about 61 percent and 39 percent of the combined company, respectively.
  • BMO Capital Markets is Aurora’s financial adviser, while McMillan LLP is legal counsel. Canaccord Genuity is advising the special committee of MedReleaf’s board, which also received an independent fairness opinion from GMP Securities and an independent financial diligence report from Deloitte LLP. Stikeman Elliott LLP is legal counsel to MedReleaf and Davies Ward Phillips & Vineberg LLP is legal counsel to shareholders of MedReleaf.
  • MedReleaf was 7.9 percent higher at C$26.80 at 9:02 a.m. in pre-market trading in Toronto while Aurora was 0.9 percent higher at C$8.14.

Here at Dollar Destruction, we endeavour to bring to you the latest, most important news from around the globe. We scan the web looking for the most valuable content and dish it right up for you! The content of this article was provided by the source referenced. Dollar Destruction does not endorse and is not responsible for or liable for any content, accuracy, quality, advertising, products or other materials on this page. As always, we encourage you to perform your own research!

Source
Author: Simon Casey, Eric Pfanner and Kristine Owram  
Image Credit