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The Canadian cannabis industry has continued to be a bright spot for cannabis investors and 2017 has already provided investors with strong investment returns.
This sub-sector of the cannabis industry has been on fire since July 2016 with the increased interest fueled by the anticipation that Canada will become the first G-7 nation to legalize recreational cannabis.
All Eyes on Legislation this Spring
One of the highly anticipated events of 2017 is the tabling of legislation as it relates to a legal recreational cannabis program. This development is expected to take place in the spring.
During December, a federal task force released its long-awaited recommendations relating to the legalization of recreational marijuana. The report was prepared by a committee comprised of nine members who have worked together since June.
One of the largest fundamental changes within the Canadian cannabis sector over the last year relates to the amount of capital entering the industry as well as the source of the capital. The capital entering the industry is not only larger but smarter too; these investors and firms are long-term holders who see the bigger picture.
Capital Continues to Pour in
Amidst the optimism, Canadian licensed medical cannabis producers have been aggressively raising capital to make acquisitions and to increase production capacity. These companies are raising capital to prepare for an expected increase in demand once the recreational cannabis program gets started.
Although legal recreational cannabis provides companies with a great opportunity, it also presents a significant hurdle. There are currently more than 100,000 medical cannabis patients in Canada and these patients are facing a supply shortage. There is simply not enough cannabis to go around.
While increasing patient numbers combined with increasing product recalls and new regulations have contributed to this problem, licensed producers continue to prepare to tackle this issue.
Cannabis Oils: A Significant Opportunity
One of the greatest opportunities for cannabis companies is cannabis oils. Highlighted by a higher retail price and higher profit margins, cannabis oils will prove to be one of the most significant revenue streams for licensed cannabis producers over the next decade.
The Canadian medical marijuana market is saturated with mid-grade products and Licensed Producers are usually sold out of top quality flower.
One of the best solutions for Licensed Producers when they have too much product is to turn it into cannabis oil. This higher cost product increases the shelf life of medical cannabis and is attractive to consumers.
Seven Stocks to Watch
Although the emerging Canadian cannabis industry offers investors a lot of opportunity, this does not come without risk. Many of the companies levered to this sector have seen a significant rally over the last six months while some have not fared as well.
We want to highlight seven Canadian cannabis stocks that should be on every investor’s radar. From public to private, from producers to clinics, there is a lot of value within this sub-sector of the cannabis industry. Join Mushroomstocks and become a Premium Member to stay on top of these opportunities.
In December, we highlighted Aurora Cannabis (ACB: TSX Venture) (ACBFF: OTC) as our 2016 Turnaround Story of the Year following our recommendation in early 2016 when the shares were trading below the $0.50 level.
2017 has already proved to be a significant year for Aurora and it is only February. So far this year, the company announced a $60 million private placement (bought deal at $2.25); Aurora received permission from Health Canada to sell cannabis oils; and the company is building another facility called Aurora Sky that can produce more than 100,000 kilograms a year.
Last week, Aurora Cannabis announced a corporate update and the company reported to have more than 12,000 patients. The company also said it will report earnings on March 1st and we think investors should keep an eye on how the shares trade leading up to and after this date.
The Green Organic Dutchman’s second round of financing closes today at 5pm and investors can still reach out to support@mushroomstocks.com if they want to access this opportunity.
Terms of the offering are as follows: The company is selling units at $1.15 CAD per unit and the minimum purchase level is 5,000 units. Each unit consists of one common share and one full share purchase warrant. Each warrant provides the investor to purchase shares of The Green Organic Dutchman at $2.15 for the next two years – no matter what price the shares are trading at.
The Green Organic Dutchman produces farm grown pharmaceutical grade organic cannabis. The company has differentiated itself from the competition by producing high-quality organic cannabis that sells for a higher price and has better profit margins. The company is led by a management team that has a proven track record of success with licensed Canadian medical cannabis producers such as OrganiGram and Emblem Corp.
Aphria (APH.V: TSX Venture) (APHQF: OTC) has been one of the top performers this year and the shares are up approximately 30% YTD. The shares moved considerably higher after the company received conditional approval to up-list on the TSX exchange and we remain favorable on the company’s long-term outlook.
In early February, Aphria announced a $50 million private placement at $5.00 a share and this transaction is expected to close this week. The company expects that 80% of the net proceeds will be allocated toward the currently unfunded portion of Part IV Expansion, with the balance being allocated toward strategic investments.
The Part IV expansion will increase Aphria’s capacity from 300,000 to 1 million square feet. In addition, the company’s infrastructure will grow to over 250,000 square feet which is necessary to service the expected 70,000 kilograms of eventual annualized harvests. The project includes 700,000 square feet of Dutch style greenhouses, 230,000 square feet of infrastructure, including new Level 9 vaults, automation for all of the greenhouses, processing areas, warehouse facilities, a 15 MW power and heat co-generation facility and security consistent with ACMPR standards.
Aphria anticipates completion of Part IV within 12 months, Health Canada approvals within 4 months of completing the expansion and first harvest within 4 months after such approvals.
In December 2016, Aphria invested $8.4 million in Canabo Medical Inc. (CMM.V: TSX Venture) (CAMDF: OTC) at $1.40 a share. Canabo is another stock we are very favorable on as the shares trade at an almost 40% discount to the level at which Aphria invested at.
Canabo owns and operates the largest line of medical cannabis clinics in Canada and we expect to see the company continue to expand its footprint across Canada.
CMM.V is trading at $0.85 after the shares rallied more than 13% on above-average volume. We highlighted the company last month as an attractive opportunity and continue to see upside to current levels. The company’s United States symbol, CAMDF, is trading below $0.67 after a 16.4% rally and we continue to see upside to these levels.
Emblem Corp. (EMC.V: TSX Venture) (EMMBF: OTC) continues to be a stock we are favorable on after the company had one of the most successful initial public offerings in December 2016. We recently visited the company’s facility and were very impressed with what we saw.
Emblem is focused on the cannabis oil market and we expect it to prove itself to be a significant source of revenue over the next year. Last summer, the company purchased oil extraction equipment and has invested $1 million into this division since inception. Demand for cannabis oils, especially high CBD oil, continues to increase and this is a trend we expect to continue as researchers learn more about the therapeutic value cannabinoids provide.
In December, Emblem received confirmation from Health Canada that its license under the ACMPR will be amended to permit the production of cannabis oils. This was an important milestone for the company because its pharmaceutical division needs to be able to extract cannabinoids to execute on its business plan. Stay tuned and keep an eye on Emblem as this is a story to watch.
PharmaCan Capital (MJN: TSX Venture) (PRMCF: OTC) has the top performing licensed Canadian medical cannabis producer this year and the shares are up 92.6% YTD. The company does business as Cronos Group and in 2016, it sold one of its properties to NYSE-traded Innovative Industrial Properties (IIPR).
The shares were under pressure last week after the company announced a $15 million private placement at $2.25 a share. MJN.V quickly bounced back and rallied more than 40% over the past few trading days.
The company’s wholly-owned subsidiary, In The Zone, recently received approval from Health Canada to sell medical cannabis. This comes while its other wholly-owned subsidiary, Peace Naturals, is positioned to capitalize on the recent medical cannabis legislation in Germany through its export relationship with Pedanios GmbH.
Although the shares have recently run significantly higher, we have become increasingly favorable on the company over the last quarter and continue to monitor trading closely. Become a Mushroomstocks Premium Member to keep up with our analysis.
Canopy Growth Corp. (WEED.TO: TSX) (TWMJF: OTC) continues to be the Canadian medical cannabis leader and we view the company as one of the best long-term cannabis investments.
The company recently completely the acquisition of Mettrum Health, which significantly expanded its product line and that led to a surge in revenue. The market did not initially respond favorably to Canopy’s earnings report and the shares recorded its largest drop of the year.
Canopy has been able to recapture most of its losses and we continue to remain favorable and monitor trading activity closely. WEED.TO recently traded into the $13.20 range and the shares are currently trading at $12.64. We remain favorable on Canopy Growth and this company should be on every cannabis investor’s radar screen.
Important Investor Disclosures
Disclosure. Compensated Affiliate. This report was authored by and is property of StoneBridge Partners LLC. All information and data relied upon in drafting this report is publicly available. The author believes and considers its sources to be reliable, but does not guarantee the accuracy or completeness of any information contained in this report. Any and all information, data, analyses and opinions are provided for informational purposes only and is not intended, in any manner, as investment advice. Any projections or other information generated by StoneBridge Partners LLC regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. None of the material contained in this report is intended as a solution or offer to sell or purchase a specific stock or any other investment. This report is not directed to, or intended for distribution or use by, any person or entity that is a citizen, resident or located in any municipality, state, country or other jurisdiction where the distribution, publication, availability, or use of this report is contrary to any governing law or regulation. The securities discussed in this report may not be eligible for purchase and/or sale in certain jurisdictions or by particular individuals. It is important that you check any and all governing laws and/or regulations that may be applicable in your jurisdiction. Investing in securities of issuers organized outside of the United States, including ADRs, entail certain risks. The securities of non-United States issuers may not be registered with, nor be subject to the reporting requirements of the United States Securities and Exchange Commission. Please contact a Financial Advisor for professional advice regarding any and all securities investments. This report is intended for informational purposes only. StoneBridge Partners LLC’s officers, directors, employees, affiliates, or subsidiaries may have positions in securities covered by StoneBridge Partners LLC. StoneBridge Partners LLC receives compensation from the company and/or has a position in the securities mentioned in this report
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