Marijuana investors are watching stocks closely after a major Canadian brokerage firm pumped the breaks on the Canadian marijuana sector and downgraded several industry leaders.
Last week, licensed Canadian medical marijuana producers were under pressure after Canaccord Genuity downgraded several leading industry leaders and we are monitoring how these stocks continue to trade.
One of the most significant downgrades was on the leading global marijuana producer, Canopy Growth Corp (WEED.TO) (TWMJF) and was due to share price appreciation. Although Canaccord continues to believe that Canopy Growth will likely emerge as the dominant player in the cannabis space, the analysts believe that there is better value elsewhere.
Aphria Generates $15 Million in Profit in the First Quarter
Aphria Inc. (APH.TO) (APHQF) was another Canadian licensed marijuana producer downgraded by Canaccord Genuity due to share price appreciation. We are bullish on Aphria and believe the company is one that investors need to watch after the company reported $15 million in net income during the first quarter.
Aphria has been on fire and the shares have rallied more than 50% off its June lows. Over the past several months, the licensed producer has continued to demonstrate strong operational execution as one of the few profitable cannabis firms. Aphria is focused on significantly increasing production capacity ahead of the opening of Canada’s recreational market and the 100,000-kilogram greenhouse expansion plan is progressing on schedule.
Last week, Aphria reported positive EBITDA for the eighth consecutive quarter and reported $1.5 million in EBITDA from operations, a 47% increase over the prior year. The company has over $100 million in cash on its balance sheet and we are favorable on Aphria’s long-term opportunity.
Aurora Increases the Size of its Bought Deal Financing
Aurora Cannabis (ACB.TO) (ACBFF) was under pressure after the medical marijuana producer announced a $60 million bought deal financing.
Although we are favorable on this move since Aurora will need the capital to execute on its global expansion strategy, we understand why the market has responded negatively. The units in the financing are being offered for $3 each and are comprised of one common share and one full share purchase warrant ($4 for 3 years).
Today, Aurora announced that further to the previously announced $60 million bought deal financing, the company has agreed to a one-time special accommodation for the benefit of its underwriters due to very significant demand for the offering, to proceed with a concurrent, non-commissioned, non-brokered private placement of up to 2,000,000 units at $3 each.
We understand why Aurora needs capital and are not surprised by the recent offering, as well as the increase. Aurora is spending over $100 million to build an 800,000-square foot-production facility, known as Aurora Sky, located near the Edmonton International Airport. Aurora Sky can produce more than 100,000 kilograms of cannabis per year when it’s completed in mid-2018.
Aurora has made several strategic acquisition and investments and the licensed producers needs capital to execute on these moves. From international markets like Germany and Australia to ancillary opportunities like Radient Technologies (RTI.V), Aurora is focused on becoming one of the largest and most diversified cannabis companies in the world.
Last month, Aurora acquired BC Northern Lights Enterprises and Urban Cultivator as part of its strategy to capitalize on Canada’s rapidly growing market for patients who cultivate their own marijuana. Both companies supply self-contained indoor hydroponic grow systems
We are favorable on Aurora Cannabis’ long-term opportunity and view the licensed medical marijuana producer as a company that investors need to watch.
Source: Technical 420