The cannabis sector has started the month of August on a positive note and a good portion of the stocks under our coverage have come off their summer lows. This is a trend that we have been closely monitoring and will be watching how the sector continues to perform on a going forward basis.
Although the cannabis sector has been under considerable pressure, several of these companies have reported significant developments during this time and we believe that the recent weakness has created attractive near and long-term opportunities.
Over the next week, we will be publishing a two-part series that covers the Canadian and the US cannabis industry. These reports will highlight 3 Canadian companies and 3 US companies that have been laser focused on execution and have been under considerable pressure this summer.
WeedMD: A Leading Canadian Operator Trading at a Discount
A few months ago, we visited WeedMD (WMD.V) (WDDMF) facility in Strathroy and left this site visit with a very strong conviction level in the company. During the last year, the company has been nothing short of an execution story and has been highly focused on increasing production capacity as well as the cannabis concentrate opportunity.
Last week, WeedMD reported preliminary unaudited revenue numbers for the second quarter and expects to announce $8 million of revenue for the period. On a quarter-over-quarter basis, the company’s net revenues increased by more than 140% and this is a trend that we expect to continue as the team continues to execute.
Although WeedMD has been executing flawlessly on a major expansion, the shares have been under pressure with the rest of the cannabis market and have fallen more than 20% off its March highs. Below, we have highlighted some of the most significant developments reported by the coming during this time and this is an opportunity that we are watching:
- August 2nd – WeedMD secured a Health Canada license amendment to expand production into ten additional 10,000 sq. ft. cultivation rooms and ten new processing rooms at its hybrid greenhouse in Strathroy, Ontario. Licensing of the 20 additional rooms and ancillary space more than doubles WeedMD’s licensed greenhouse production space in Strathroy.
- July 23rd – WeedMD launched CX Industries, a wholly-owned subsidiary that will specialize in extraction, toll processing and third-party product formulation from WeedMD’s fully-licensed Aylmer, Ontario facility. CX Industries will have the capacity to process more than 200,000 kgs of biomass at its peak production in 2020.
- June 18th – WeedMD became the first licensed producer to be included in Shoppers Drug Mart and TruTrace Technologies’ medical cannabis verification pilot project
- June 17th – WeedMD completed the outdoor planting of more than 20,000 fully-rooted cannabis plants at its Strathroy property. WeedMD expects its first harvest to be in October and this represents a major opportunity
- June 5th – WeedMD launched Color, its recreational cannabis brand for the Canadian market
- May 31st – WeedMD secured Health Canada approval for 27 acres of low-cost, outdoor cultivation on its Strathroy property. This initiative should increase potential production output by an additional 27,000 kgs.
- May 31st – WeedMD reported first quarter financial and operating results and sold 793 kgs of dried cannabis during the period which represents an increase of 46% from the prior quarter
- May 29th –WeedMD announced that it would be converting its Alymer facility into a cannabis extraction and processing hub that is focused on the cannabis concentrate opportunity
- April 17th – WeedMD announced that Pioneer Cannabis signed a Master Cannabis Retail and Licensing Agreement with Ontario cannabis retail lottery winner who will be the owner and operator of the first Pioneer Cannabis retail store in Ontario. Pioneer Cannabis is a collaboration between WeedMD and Pita Pit, a privately-owned Canadian fast casual franchise eatery with over 225 stores in Canada.
- April 15th – WeedMD received a Health Canada Standard Processing License for its 158-acre Strathroy facility. This marks an important step in the company’s ability to scale up production, packaging and distribution of cannabis products from its large scale production site.
- April 1st – WeedMD entered into a credit facility with Bank of Montreal (BMO) to provide up to $39 million of secured debt. The facility consists of a $33.1 million term loan, a $3 million equipment term loan and a $3 million revolving credit facility.
- March 27th – WeedMD applied for an amendment to its Strathroy license to expand beyond its existing cultivation with an initial 25-acre, large-scale, low-cost, outdoor cannabis grow operation with the capacity to increase up to 50 acres. The outdoor grow is expected to increase WeedMD’s total production footprint to upwards of 2.7 million sq. ft. with the potential to yield over 100,000 kgs in 2020 together with greenhouse cultivation.
- March 5th – WeedMD appointed Derek Pedro to the newly-created position of Chief Cannabis Officer. This was a significant addition and we were very impressed with Derek when we met him at the facility earlier this year
Aphria Inc. (APHA.TO) (APHA) Reports a Blowout Fourth Quarter
One of the biggest catalysts for the cannabis sector in the month of August was the fourth quarter financial results reported by Aphria. During the quarter, the Canadian cannabis producer recorded $15 million of net income on $124 million of revenue.
Although these numbers are impressive and caused the shares to jump higher, Aphria has fallen approx. 40% from its March highs and we want to highlight the company’s accomplishments during this time:
- August 1st – Aphria announced 158% increase in adult use sales and profitable fourth quarter.
- July 29th – Aphria’s subsidiary, Marigold Projects Jamaica Limited, received a retail Herb House license from Jamaica’s Cannabis Licensing Authority (CLA) to open its first store in Kingston, Jamaica
- June 7th – Aphria announced an agreement with PAX Labs to provide premium cannabis extracts in pods designed for use with PAX’s innovative Era device and platform.
- May 21st – Aphria’s German subsidiary was awarded a fifth lot for the cultivation of medical cannabis in Germany as part of the company’s previously awarded license from the German Federal Institute for Drugs and Medical Devices (BfArM).
- May 14th – Aphria announced several new executive appointments including James Meiers to the role of Chief Operating Officer, Aphria Leamington, Tim Purdie as Chief Information Officer, Chief Information Security Officer, and Maureen Berry as Vice President, Corporate Human Resources.
- April 23rd – Aphria closed its offering of 5.25% convertible senior notes due 2024 for gross proceeds of US$350 million in a private placement to qualified institutional buyers
- April 18th – Aphria’s German secured a license for the domestic cultivation of medical cannabis from BfArM and was granted a cultivation license for four of the nine total lots awarded.
- April 15th – Aphria reports third quarter financial results
- April 1st – Aphria launched its first product in its CBD-based cosmetics line for the German market. Featuring CBD derived from hemp, the CannRelief brand of products are being produced in the European Union and distributed by the company’s subsidiary, CC Pharma, which has access to more than 13,000 pharmacies throughout Germany.
- March 4th – Aphria announced that Health Canada has granted a license amendment, permitting Aphria to start production in an additional 800,000 sq. ft.
Aurora Cannabis: A Long-Term Cannabis Leader in the Making
Aurora Cannabis (ACB.TO) (ACB) is another leading Canadian cannabis producer that has been under heavy pressure since March and this is an opportunity we continue to closely follow. When looking the price movements since March, Aurora looks very similar when compared to Aphria and the shares have fallen more than 40% during this time.
A few weeks ago, Aurora Cannabis released an operational update for the fourth quarter and the market responded favorably to this. Following this release, Aurora has been trending lower and has come off its recent highs and we want to highlight what the company has accomplished since March.
- August 15th – Aurora Cannabis announces upsizing of credit facility to $280 million. The syndicate is led by BMO and the facility will be used to fund future growth.
- July 24th – Aurora Cannabis and UFC, the world’s premier mixed martial arts organization, announced the launch of a joint clinical research program that will produce multiple studies under the terms of their recently announced partnership.
- July 18th – Aurora Cannabis was selected as the only winner of the Italian government’s public tender to supply medical cannabis in Italy . The supply contract is expected to be signed in September
- July 15– Aurora Cannabis received Health Canada licenses for outdoor cultivation at two Canadian sites. The new locations will be used for cultivation research to develop new technology, genetics and intellectual property in order to drive sustainable, high-quality outdoor production.
- June 28th – Aurora Cannabis acquires the remaining ownership interest in Hempco Food and Fiber
- June 26th – Aurora Cannabis and EnWave reported to be expanding the scope of requirements for its potential purchase of a third 120kW Radiant Energy Vacuum (REV) machine targeted for its European operations in Denmark.
- June 21st – Aurora Cannabis announced its plans for the highly-anticipated expansion of the consumer cannabis market into vapes, concentrates, and edibles.
- May 29th – Aurora Cannabis exercised its option for the use of EnWave’s REV dehydration technology for the drying of cannabis in South America (excluding Peru)
- May 14th – Aurora Cannabis announced third quarter financial and operational results where production volume showed incredible growth
- May 13th – Aurora Cannabis has taken delivery of Radient’s first commercial batch of finished cannabis derivatives, from Radient’s proprietary extraction platform. With this first batch, Radient has proven its enhanced ability to produce cannabinoid derivatives at commercial scale
- May 9th – Aurora Cannabis was selected by the Luxembourg Health Ministry as the exclusive supplier in a public bid to supply a second delivery of medical cannabis to Luxembourg.
- April 26th – Aurora and EnWave announce a royalty-bearing commercial license agreement with sub-licensing rights, providing Aurora with the exclusive rights to EnWave’s patented REV drying technology for the production of cannabis materials in the European Union, excluding Portugal.
- April 25th – Aurora Cannabis signed a binding share purchase agreement to acquire 100% of Chemi Pharmaceutical Inc, an Ontario-based laboratory specialized in providing high quality analytics services to the pharmaceutical and cannabis industries
- April 5th – Aurora Cannabis was selected as one of three winners in the public tender to cultivate and distribute medical cannabis in Germany.
- March 13th – Aurora Cannabis announced the appointment of Nelson Peltz as a Strategic Advisor
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