During the last month, we have published several articles that are centered around large-scale Canadian Licensed Producers (LPs) after they have reported quarterly earnings.
From changes in ratings or price targets from broker-dealers to insider buying and selling, these articles have covered some of the most important trends on a company by company basis.
Today, we want to change our approach to Canadian LPs and discuss a few mid-tier operators. The primary reason for our interest in these types of companies is related to the amount of consolidation we have seen in Canada.
Over the next year, we expect to see Canadian LPs announce additional mergers and acquisitions (M&A) and believe the consolidation trend is just getting started. Today, we want to highlight 3 Canadian LPs that we would classify as mid-tier and base our classification of such operators by market capitalization or revenues.
Although we do not consider HEXO Corporation (TSX: HEXO) (NYSE: HEXO) to be a mid-tier Canadian LP, the management team has been executing on a bolt-on acquisition strategy that is hard to ignore. Over the next year, we expect to see other large-scale Canadian LPs follow a similar inorganic growth strategy and will monitor how the sector continues to evolve.
Earlier this morning, Aleafia Health Inc. (TSX: AH) (OTC: ALEAF) reported second quarter financial results and recorded growth on a variety of metrics on a year-over-year basis. Earlier today, Raymond James Financial lowered its price target on Aleafia Health to C$0.90 from C$1.00 and we find the timing of the decrease to be interesting.
We consider Aleafia Health to be one of the most attractive mid-tier Canadian LPs due to its exposure to strategic international markets as well as the growth of its domestic business. During the last year, the Canadian LP has significantly increased the number of products that are levered to the 2.0 market and we find this to be an attractive aspect of the story.
Next week, Auxly Cannabis (TSX: XLY) (OTC: CBWTF) will report second quarter financial results and this is a business that we have been following since 2017. Yesterday, Raymond James Financial changed its rating on Auxly to Outperform from Market Perform.
Auxly is another Canadian LP that is highly levered to the 2.0 market and we expect the company to report strong growth on a year-over-year basis. At current levels, the valuation is attractive when compared to some of its peers and we will continue to monitor the opportunity from the sidelines.
If you are interested in learning more about mid-tier Canadian LPs, please send an email to email@example.com with the subject “Mid-Tier Canadian LPs” to be added to our distribution list.
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