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3 Canadian Licensed Producers Investors Need To Be Watching

Mar 12, 2019 • 11:00 AM GMT+0000
5 MIN READ  •  By Michael Berger
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Canadian cannabis producers have been trading higher in 2019 and we have been closely monitoring this trend. During the last year, a good number of these companies have significantly advanced their fundamental stories and this year will be all about execution. Investors have become a lot smarter and companies will need to start backing up their valuations with performance.

Today, we have highlighted 3 Canadian Licensed Producers that we have been closely monitoring. We believe that these 3 companies are well positioned for growth over the next year and believe that investors should be watching this one.

Aleafia Health is Flying Under the Radar

Aleafia Health (ALEF.V) (ALEAF) is a company that is high on our radar pending the close of its acquisition of Emblem Inc. We think this represents a strategic acquisition that will immediately prove to be accretive for Aleafia Health due to the nature of Emblem’s business, which is a leading Canadian cannabis producer that is highly levered to the cannabis clinic opportunity.

Last year, Aleafia Health acquired Canabo Medical Clinics and we believe the acquisition of Emblem solidifies the company’s leadership position in Canada’s cannabis clinic industry. One of the most attractive aspects of the cannabis clinic market is related to the amount of patient data that is collected. When it comes to the medical side of the cannabis industry, this data is quite valuable to large pharmaceutical and insurance companies.

We are favorable on the combined company and believe that it has significant growth prospects. Emblem has attractive leverage to Canada’s medical and recreational cannabis market and it has been laser focused on the smokeless product opportunity. We think these two areas of focus represent significant areas of growth and will monitor how Aleafia Health executes on this.

Demand for smokeless cannabis products continues to increase and this is a trend that we expect to continue. During the last decade, we have seen a significant decline in the number of people smoking cigarettes while the number of people smoking e-cigarettes has skyrocketed. We are seeing a similar trend in the cannabis industry and we think this is significant due to the better margins and the higher price tags associated with these products. Emblem provides Aleafia Health attractive leverage to this trend and this is something investors needs to be watching.

Although Aleafia Health has significantly advanced its fundamental story, the shares have been trending lower and this is something we are watching. The company has very attractive growth prospects especially after the acquisition of Emblem and we think the recent decline is worth noting. Over the next quarter, we expect to see Aleafia Health report some significant developments and this is a company that you should keep on your radar.

Canopy Growth Brings on Martha Stewart to Capitalize on CBD

When it comes to Canadian cannabis producers, it is tough to not mention Canopy Growth Corp. (WEED.TO) (CGC). The company is the largest and best managed global cannabis producer and is in the middle of a massive expansion.

Earlier this month, Canopy Growth announced an agreement that resulted in Martha Stewart joining the company in an advisory role to assist with developing and positioning a broad new line of product offerings across multiple categories. This is a significant relationship that will be focused on the commercialization of a cannabidiol (CBD) product line.

Earlier this year, Canopy Growth was granted a license to process and produce hemp in New York. The company said it is planning to invest $100 million to $150 million in a New York facility that is capable of producing tons of hemp extract. The company has significant catalysts for growth and this is one of its exciting initiatives to watch.

Going forward, we expect the company’s fundamentals to significantly improve and expect revenues to increase incrementally. Like Aurora, Canopy has leverage to some of the most attractive emerging cannabis markets in Europe and South America. We expect to the see these investments to start paying off in spades and will monitor how the team executes on this.

Aurora Cannabis is a Company to Watch

During the last quarter, Aurora Cannabis (ACB.TO) (ACB) has been a top performer and we have been closely following the Canadian cannabis producer since 2014. The recent rally has been significant and has been fueled by the following reasons: the shares were trading at oversold levels; broker-dealers have been initiating coverage with Buy ratings and high price targets; and by the company’s ability to continue to execute at a very high level.

Aurora Cannabis is one of the best positioned Canadian cannabis producers and it has leverage to more than 20 international cannabis markets. With this type of reach, the company is positioned for significant growth and this is something that we continue to monitor. It will take a lot of capital in order for the company to fully execute on its growth strategy and we have seen the company sell some of its investments in order to raise the capital in a non-dilutive manner.

Earlier this year, the Canadian cannabis producer enhanced its leverage to the organic cannabis market thought the acquisition of Whistler Medical. Although this acquisition came with a very high price tag, it bodes well for the company’s previous investment in The Green Organic Dutchman (TGOD.TO) (TGODF) which expects be the largest organic cannabis producer in the world by the end of the year.

Aurora Cannabis is in the middle of a major expansion and this is a project that we are monitoring. The company’s production capacity is expected to significantly increase by the end of the year and this will support its leverage to international markets. Although the recent rally has been significant, we think this is a company that investors should be watching.

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Authored By

Michael Berger

Michael Berger is Managing Partner of StoneBridge Partners, LLC and Founder of Technical420.com. Prior to entering the cannabis industry, Michael was an Equity Research Analyst at Raymond James Financial covering the Energy Sector. Michael has been featured in publications such as The Street, Bloomberg, US Money News, and hosts various cannabis events across North America.

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