‘Where there’s smoke, there’s . . . opportunity’ concludes The MoneyLetter after surveying a number of security analysts’ reports on medical cannabis producers in Canada. Companies already established in the medical marijuana business are gearing up to meet the demand on production expected with the impending legalization of the recreational marijuana market.
Canopy Growth Corporation
Canopy Growth Corporation (TSX—WEED) has received additional licensing at both cannabis greenhouse facilities operating under its majority-owned BC Tweed Joint Venture Inc. banner, including the licensing of the largest cannabis facility in the world.
In total, Canopy Growth’s licensed growing space has tripled in calendar 2018, to more than 2.4 million square feet and it remains on path to exceed 5.6 million square feet of domestic growing space.
Toronto-based Beacon Securities analyst Vahan Ajamian maintains his ‘Buy’ recommendation.
Near-term, he expects the BC Tweed joint venture company will begin moving the first shipment of plants into the Delta greenhouse. By the end of the summer, he expects Canopy Growth to have the entire 3-million square feet space in BC up and running.
“These developments reinforce our view that Canopy has the expertise, financial resources and regulatory know-how to accomplish significantly more and move meaningfully faster than its competitors. We believe the company is best positioned to swarm the shelves of the legal market in all regions—which is the best set up for any (marijuana) licensed producer to get first-time users and keep them long term. The company is targeting 40 per cent market share.”
On a separate note, Canopy announced the acquisition of the largest Czech medical cannabis company, Annabis Medical, for 50,735 shares upon closing and another 34,758 shares subject to reaching certain milestones. Based on recent share prices, the total value of the deal could be approximately $2.5 million.
Healthcare stock Canopy Growth produces and sells medical marijuana in Canada, and is positioning itself for the pending legalization of the recreational market. It is headquartered in Smith Falls, Ontario.
Aurora Cannabis Inc.
Healthcare stock Aurora Cannabis Inc. (TSX—ACB) was recently the bearer of good news when it announced the acquisition of approximately 71 acres of land in Medicine Hat, Alta.
According to Vancouver-based PI Financial analyst Jason Zandberg, Aurora’s acquisition happens to be in the same area where the licensed producer of medical cannabis intends to build a new 1.2-million square-foot hybrid green house that is projected to produce 150,000 kg annually.
“The new facility, named ‘Aurora Sun’, will be designed and engineered by Aurora Larssen Projects Inc. and will be 50 per cent larger than Aurora Sky. We expect that the facility will cost $130 million to $150 million to build and like all Aurora facilities, will be built in compliance with EU good manufacturing practice standards,” says the analyst.
“The addition of Aurora Sun brings ACB’s total expected capacity to over 430,000 kg per year and is anticipated to supply both the Canadian medical and recreational marijuana markets as well as the rapidly expanding international market. Management stated that they expect first planting will occur in the first half of calendar 2019, with completion of the full facility in the second half of 2019.”
Mr. Zandberg, who reiterates his ‘Buy’ recommendation and sticks with his $15 per-share 12-month target price, says that production expenses are expected to drop to under $1 per gram at full capacity on account of the higher degree of planned automation and ideal growing conditions.
The analyst adds that Aurora strategically selected Medicine Hat for the base of its Aurora Sun plant due to its abundance of sunshine, minimal-cost electricity, minimal humidity and friendly business environment.
Vancouver-based Aurora Cannabis, together with its subsidiaries, produces and distributes medical marijuana products in Canada.
Healthcare stock Emblem Corp.’s (TSXV—EMC) outlook is getting better, says Mr. Zandberg and his Vancouver-based PI Financial colleague Devin Schilling after the medical marijuana company announced results for the fourth quarter of 2017.
The analysts, who boost their recommendation to ‘Buy’ from ‘Neutral’ and increase their 12-month target share price to $2.75 from $2, say that Emblem’s revenues for the quarter were $700,000, EBITDA (earnings before interest, taxes, depreciation and amortization) was a loss of $1.8 million, and EPS (earnings per share) was a loss of $0.04.
As for some good news, the company’s performance on the revenue and EBITDA fronts surpassed the analysts’ projections for revenue—$600,000—and for EBITDA—a loss of $2.2 million. And the company’s EPS tally was just below the analysts’ projection of a loss of $0.03.
The company’s GrowWise Health chain of clinics generated sales of $514,000 last year. According to the analysts, Emblem acquired the 50 per cent stake in the GrowWise chain that it did not already own for a loonie during the fourth quarter of last year. “We believe this enterprise offers value to EMC shareholders as it has been primarily responsible for the increase in new patients at EMC, adding 600 patients in the first quarter alone,” say Messrs. Zandberg and Schilling.
Toronto-based Emblem produces and sells medical cannabis in Canada.
This is an edited version of an article that was originally published for subscribers in the May 2018/Second Report of The MoneyLetter. You can profit from the award-winning advice subscribers receive regularly in The MoneyLetter.
The MoneyLetter, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846