Last week was a strong week for marijuana stocks, especially for licensed Canadian medical marijuana producers.
Emblem Corp (EMC.V) (EMMBF) and Canopy Growth Corp (WEED.TO) (TWMJF) were the big winners, ending the week up more than 10%. We are favorable on this development and believe this is a trend to keep an eye on.
Canada plans to roll out a legal recreational marijuana program before July 1, 2018, and licensed marijuana producers are focused on increasing production capacity to satisfy an expected increase in demand.
One trend we have recognized and have highlighted is a steady increase in demand for cannabis oil. We continue to monitor how licensed marijuana producers capitalize on this trend and believe that cannabis oil will become the most significant revenue steam for producers in 2018.
While we are favorable on the growing trend toward smokeless products, Canada’s marijuana market is still in the first inning of a multi-decade growth cycle and we expect to see many new trends develop as the market matures.
Although Health Canada currently prohibits the production and sale of marijuana infused products once it opens, we expect this market to be significant. Although edibles are not allowed, several licensed marijuana producers are already preparing to capitalize on this new opportunity and believe this is a trend to watch.
We want to highlight five of the leading Canadian medical marijuana producers and updates on each following the recent rally.
Canopy Growth: A Global Cannabis Leader
Canopy Growth (WEED.TO) (TWMJF) is the largest and most diverse licensed Canadian medical marijuana producer. The company has more than 58,000 registered Canadian patients on its online store, Tweed Main Street, and is also levered to emerging international medical marijuana markets.
Canopy Growth is levered to Germany’s emerging medical marijuana market and has a greater breadth of multi-site management than any other marijuana firm in the world. In addition to previously announced work in Brazil and its stake in Australia-based AusCann Group, the company has also entered Chile’s marijuana market.
Canopy Growth possesses some of the most attractive growth prospects and will be one of the greatest beneficiaries of the marijuana movement. The company has a very strong balance sheet and recently received a $25 million investment from a single investor. This is a company that marijuana investors need to watch.
Aphria: A Canadian LP With Exposure to the U.S.
Aphria (APH.TO) (APHQF) was the 14th licensed marijuana producer in Canada and is well positioned to capitalize on the current medical marijuana market as well as the proposed legal recreational market. We expect Aphria to record significant growth over the next year after Health Canada approved its Part II expansion in May, which tripled the amount of marijuana it can produce.
Aphria is levered to several significant growth trends as well as the United States marijuana market. The shares have rallied well off its June lows and are up more than 20% in the last month. The company recently reported fourth quarter earnings which showed strong growth. Aphria recorded its seventh consecutive quarter of positive earnings before interest, tax, depreciation and amortization (EBITDA).
Once the company completes its Part III and IV expansion, Aphria will be able to produce 75,000 kilograms and could serve both the medical and the recreational marijuana market. We are favorable on the company’s growth prospects and will monitor how the shares trade from here.
Aurora: Positioned to be a Global Leader
Aurora Cannabis (ACB.TO) (ACBFF) commenced trading on the TSX exchange last week and the shares have rallied more than 30% off its June lows. The company has been executing flawlessly and is one of the world’s leading marijuana producers. We are favorable on Aurora and view the company as one of the best long-term opportunities in the Canadian cannabis industry.
The last quarter has been transformational for Aurora. From Australia to Germany, this Canadian licensed producer has significantly increased its market share and is levered to new legal cannabis markets across the globe. The company is also in the middle of a major expansion project which will make it one of the world’s largest producers.
Aurora has a very strong balance sheet and has more than 16,000 registered patients in Canada. We are favorable on both the company’s focus on increasing capacity, and its leverage to legal international cannabis markets and view it as a company investors need to watch.
Emblem: A Biotech and Marijuana Story
Emblem (EMC.V) (EMMBF) is a licensed Canadian medical cannabis producer that is uniquely positioned within the rapidly growing medical and recreational cannabis industry. We are favorable on Emblem’s differentiated strategy when compared to its peers and are bullish on its long-term growth prospects.
Emblem has a diverse business model and operates three distinct divisions which can create value for each other. The company is also focused on the biotech side of the medical marijuana industry and believe this is a very undervalued aspect of the business.
Emblem started selling medical cannabis in August and has more than 2,000 registered patients. The company is led by a management team that has a proven track record of building successful multi-billion dollar companies and its balance sheet is flush with cash to support its expansion plans. We are favorable on Emblem due to its growth prospects and current valuation. We expect to see incremental growth on a year-over-year basis and believe this is a stock to watch.
CanniMed: Levered to International Markets and Cannabis Oil
In mid-June, CanniMed Therapeutics (CMED.TO) (CMMDF) reported better-than-expected second quarter financial results and we highlighted the shares as an attractive opportunity. Since then, the shares have rallied more than 45% and CanniMed has been one of the top performing marijuana stocks.
The trend toward smokeless marijuana products continues to increase and CanniMed has been a pioneer in this sectior. We are favorable on the company’s focus on the cannabis oil market and CanniMed has already been benefiting from this focus. In the second quarter, cannabis oil accounted for almost 50% of total revenues. CanniMed expects its gelcaps to be available in the next couple of months and we expect the product to command a price premium to that of oils.
After the second quarter, CanniMed completed its first shipment of commercial cannabis oil to Australia (3,600 ml of CanniMed Oils). CanniMed also sold 12,960 ml of its CanniMed Oils to the Cayman Islands where dispensing of the CanniMed Oils to patients with a valid medical document has begun.
We are favorable on CanniMed’s leverage to the Canadian medical marijuana market as well as various international opportunities. The company also has a distribution agreement in the EU and we expect to hear about developments regarding this soon. We will continue to monitor how CanniMed trades from here and believe this is a stock to watch.
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Source: Technical 420