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3 Canadian LP’s Leveraging International Expansion For Future Growth

Nov 26, 2018 • 11:51 AM EST
Cannabis (33).png
5 MIN READ  •  By Michael Berger
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November has been a tough month for the overall market as well as the cannabis sector and this is a trend that we continue to monitor.

The recent decline has been significant and has been fueled by companies reporting quarterly financials that have come in below expectations. The market has much higher expectations for these companies, especially the Canadian cannabis producers, and this is a trend worth watching.

Today, we have highlighted three leading Canadian cannabis producers that have been capitalizing on the international cannabis opportunity. These companies are leaders in the Canadian cannabis industry and have been focused on new burgeoning opportunities. These companies have come under pressure recently and believe that these are companies worth watching.

Aurora Cannabis: Continues to Execute and Expand

Last week, Aurora Cannabis (ACB.TO) (ACB) and ICC Labs (ICC.V) (ICCLF) announced the completion of the acquisition agreement, whereby Aurora has acquired 100% of ICC for $1.95 per share, reflecting an aggregate purchase price of approximately $290 million. This represents a significant acquisition that establishes Aurora as the industry leader in Latin American, a region which encompasses more than 650 million people from across Mexico, the Caribbean, Central America, and South America.

This acquisition enhances Aurora Cannabis’ growth prospects and we expect it to prove to be immediately accretive. ICC is the middle of a major expansion with both established facilities and a number of projects in various stages of completion that will bring the estimated production capacity of cannabis and hemp to over 450,000 kilograms per year, adding significant value to Aurora’s funded footprint.

Although Aurora Cannabis has been nothing short of an execution story, the shares have been trending lower and we have been monitoring this. Last month, the Canadian cannabis producer commenced trading on the New York Stock Exchange (NYSE) and this represented a major milestone for the company.

Aurora Cannabis has attractive growth prospects heading into 2019 and is highly levered to the global cannabis opportunity. The company is in the early innings of a major growth cycle and this is a story to watch.

Aphria: An Execution Story Worth Watching

Earlier this month, Aphria Inc. (APHA.TO) (APHA) commenced trading on the NYSE and joined Aurora Cannabis and Canopy Growth (WEED.TO) (CGC) on the exchange. This was a significant development and we have been closely monitoring the Canadian cannabis producer.

Aphria has been executing flawlessly on a global expansion and we have been favorable on the recent developments. Earlier this month, Aphria announced its proposed acquisition of CC Pharma GmbH, a leading distributor of pharmaceutical products to more than 13,000 pharmacies in Germany. The transaction will strengthen the company’s end-to-end medical cannabis operations and infrastructure in Germany, a key market in Aphria’s international expansion.

Founded in 1999, CC Pharma is a leading importer and distributor of EU-pharmaceuticals for the German market, with over €200 million in annual revenue. Aphria will pay €24.5 million in cash to CC Pharma at closing, with an earn-out multiple on future EBITDA of up to another €23.5 million following closing, if certain performance milestones are met.

Aphria previously announced a supply agreement with CC Pharma to export approximately 1,200 kilograms of medical cannabis products from Canada to Germany. With Aphria’s experience as a global cannabis leader, the company will create a new division of CC Pharma dedicated to medical cannabis. CC Pharma operates a production, repackaging and labeling facility at its headquarters in Densborn.

The transaction will bolster Aphria’s growing presence in Germany, which includes a three-pronged approach covering demand, supply and distribution. Earlier this year, the company, through its wholly-owned subsidiary Aphria Deutschland, acquired a 25.1% interest in Berlin-based Schöneberg Hospital, providing access to both doctors and patients to support education about the benefits of medical cannabinoids. It was also the first step in Aphria Germany’s plans to build and operate pain treatment centers throughout Germany.

Although Aphria has significantly improved its fundamental story, the shares have been trading lower with the market and we have been monitoring this opportunity. 2018 has been a banner year for the Canadian cannabis producer and we are bullish on the growth prospects heading into 2019. We will continue to closely monitor this burgeoning opportunity.

Canopy Growth: A Leading Global Cannabis Producer

Although Canopy Growth has executing on all cylinders and is the largest Canadian cannabis producer, the shares have been trading lower with the market and this is an opportunity that investors should be watching. Canopy Growth has been under considerable pressure and the shares have fallen more than 40% from its October highs.

From Australia to Germany, from Chile to Canada, Canopy Growth has a leading position in burgeoning cannabis markets across the globe and has attractive growth prospects heading into 2019. Earlier this month, Canopy Growth reported earnings that came in well below expectations and the shares traded lower on this. While the weaker-than-expected results came as a surprise, we think the market became overly negative on the Canadian cannabis producer.

Canopy Growth has a war chest of cash to make investments and acquisitions after Constellation Brands (STZ) made a $4 billion investment in the company. We expect to see the company continue to make acquisitions of cannabis producers and brands all over the world and this is an attractive aspect of the story.

Canopy Growth is by far the largest and most diverse licensed Canadian medical marijuana producer. The company has a greater breadth of multi-site management than any other cannabis firm in the world. Canopy possesses some of the most attractive growth prospects and we believe that this a company to watch.

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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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