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The cannabis sector was in rally mode yesterday and Canadian cannabis stocks led the market higher. We are favorable on this reversal from earlier this week and will keep an eye on how the sector trades from here.
Today, we have highlighted 3 important Canadian company updates and believe that investors need to be aware of these opportunities.
Aphria to Raise $225 Million to Fund Growth
Aphria Inc. (APH.TO) (APHQF) traded higher after announcing that the Board of Directors approved a $55 million capital project to build a extraction center equipped to produce cannabis concentrates. The facility is scheduled to release its first concentrates by March 2019 and will be able to process more than 200,000 kilograms of cannabis on an annual basis.
The Boards of Directors also approved a $20 million increase to Aphria Diamond’s capital expenditure budget, which will be used to further improve the technologies at the facility. These improvements will increase Aphria Diamond's total production capacity to 140,000 kilograms and support alternative growing techniques. On top of this, Aphria plans to build out new facilities on a property acquired in late 2017, which will be able to producer 10,000 kilograms per year (when operational). All told, these initiatives will bring Aphria’s annual production capacity to 255,000 kilograms and we are favorable on these growth opportunities.
After the market closed, Aphria announced a $225 million brokered private placement at $11.85 a share (can raise $258 million if the over-allotment option is exercised). Aphria is trading at $12.79 and we expect the shares to trade slightly lower on this announcement. The company intends to use the net proceeds to finance its recently announced extraction center in addition to its recently announced capacity increase at Aphria Diamond, as well as the construction of additional cannabis production facilities globally in both foreign and Canadian jurisdictions where cannabis is legally permitted.
We are favorable on the capital raise as it will provide Aphria with significant capital to capitalize on previously announced growth initiatives. The company’s focus on increasing production capacity is significant and we are bullish on the construction of a cannabis extract facility. Aphria has been laser focused on execution and we will monitor how the company executes from here.
Canopy Growth Announces a Significant Contribution
Canopy Growth (WEED.TO) (CGC) traded higher after announcing plans to contribute $2.5 million to the University of British Columbia (UBC) and BC Centre on Substance Use (BCCSU) to fund research into the potential utility of cannabis in addressing the overdose crisis. The funds, provided over a two-year period, will establish the Canopy Growth Professorship in Cannabis Science and create an enduring legacy of research through the Canopy Growth Cannabis Science Endowment Fund.
Through an investment from the British Columbia Ministry of Mental Health and Addictions towards research leading to solutions to the overdose crisis, the BCCSU will contribute an additional $500,000 in funds held at the St. Paul's Foundation. The investment had been pending contributions from a matching philanthropic contribution, which is now being provided by Canopy Growth. The funding partnership announced aims to define the potential benefits of cannabis as a legitimate therapeutic treatment.
While this initiative does not seem to be a value driver for shareholders, this is an important undertaking for Canopy. Cannabis can play a significant role in the opiod crisis and this study can provide important data points on how cannabis provides medical benefits. Canopy Growth is the leading global cannabis company, with assets on five continents. We are bullish on Canopy as a long-term opportunity and investors need to keep an eye on this one.
FinCanna: A California Cannabis Stock to Watch
FinCanna Capital Corp. (CALI.CN) (FNNZF) announced that Cultivation Technologies Inc., (CTI) its first investment in California, has generated $1 million in cumulative revenue since it commenced commercial operations in late January. Earlier this week, FinCanna said that CTI has expanded its network of dispensaries carrying Coachella Premium brand of cannabis products to ten locations across California.
CTI is working to maximize the commercial potential of its extraction facility, which can process approx. 6,000 pounds of biomass per month, which translates to approximately 3.7 million grams of raw cannabis oil annually. FinCanna is entitled to receive 50% of the profits from this extraction facility.
FinCanna has been under significant pressure in 2018 and the shares are down almost 70% during this time. While we are favorable on the announcement today, we are monitoring the shares cautiously and will keep an eye on how they trade from here. Although FinCanna has continued to execute, the shares have been pulling back and we think this could create a great opportunity for investors.