2018 has proven to be a banner year for the cannabis industry and we expect 2019 to be even more significant. Following Altria’s investment in leading Canadian cannabis producer Altria Group (MO), many investors are trying to invest in what could be the next big acquisition target.
During the next year, we expect the cannabis industry to see significant consolidation and expect to see more companies like Altria and Constellation Brands (STZ) make investments in the sector.
Increased interest from these types of companies will be a major catalyst for the cannabis sector and this is something to watch. Today, we have highlighted 3 leading Canadian cannabis producers that are worth watching.
Aphria has been Coming off its Lows
Aphria (APHA.TO) (APHA) is a leading Canadian cannabis producer that has rallied more than 70% off its December lows and we have been monitoring closely this opportunity. The company came under pressure after a negative report was published by Quintessential Capital Management and Hindenburg Research, stating that Aphria’s Latin America acquisitions were largely worthless.
Following the issuance of this report, Aphria released a statement and said that it unequivocally stands behind its acquisition of LATAM Holdings Inc., which consists of licenses and other assets related to businesses in Colombia, Argentina and Jamaica. The management team doubled-down on its stance and bought more shares in the company.
During the last few years, we have closely monitored Aphria and have been favorable on the continued execution. If these allegations prove to be false, we expect Aphria to recapture a good portion of its recent losses and this is an opportunity to monitor.
Altria Makes a Major Investment in Cannabis
Last week, Altria, the maker of Marlboro cigarettes, made a $1.8 billion investment in leading Canadian cannabis producer Cronos Group (CRON.TO) and acquired 45% of the company. Altria was also issued common stock purchase warrants that will allow the company to increase its ownership stake in Cronos to 55%.
Although several media outlets reported that the companies were in discussions ahead of the investment, the market responded very favorably to this development and Cronos surged higher on this announcement. The shares have come off its highs following the initial response but we think this is a company to watch.
In 2017, Constellation Brands made an investment in leading Canadian cannabis producer Canopy Growth (WEED.TO) (CGC) and the shares surged higher after this. Although Canopy Growth came off its highs shortly after this was reported, the shares continued to trade higher. While we do not expect Cronos to see the same response as Canopy, we will monitor how the shares trade from here.
MediPharm Labs is a Leading Cannabis Oil Opportunity
MediPharm Labs (LABS.V) (MLCPF) is a company that is highly levered to the Canadian cannabis oil market and has been executing on a multi-faceted growth strategy. MediPharm is focused on producing pharma-grade cannabis oil and concentrates and is operating out of a fully functional 70,000 sq. ft. facility that has been constructed to cGMP standards with ISO rated clean rooms.
Earlier this year, MediPharm was granted a cannabis oil production license from Health Canada and the company has been extracting cannabis at scale and has filled up its vault with inventory that is ready for sale. Now that MediPharm has been granted a Sales License, the company can capitalize on the strategic relationships and agreements in place and we are monitoring how the team executes from here.
Last month, MediPharm Labs reported a strategic supply agreement with Canopy Growth (WEED.TO) (CGC), whereby MediPharm will supply up to 900kg of cannabis extract for sale to Canopy Growth and its subsidiaries. Canopy Growth has committed to purchasing a minimum of 450kg with an option to purchase an additional 450kg.
MediPharm has also secured cannabis concentrate program agreements with several high-profile Canadian cannabis producers, whereby MediPharm will received dried cannabis for the purposes of creating cannabis oil. The company has a very attractive growth profile and has signed supply agreements with the following companies: Emerald Health Therapeutics Inc. (EMH.V) (EMHTF), The Supreme Cannabis Company (FIRE.V) (SPRWF) Newstrike Brands (HIP.V) (NWKRF), INDIVA Limited (NDVA.V) (NDVAF), James E. Wagner Cultivation (JWCA.V) (JWCAF), and Bonify.