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Aurora Cannabis and Canopy Growth Corp. Are Racing To Build Competing Canadian Cannabis Retail Footprints

Aug 31, 2020 • 7:27 AM EDT
3 MIN READ  •  By Michael Berger
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Although the Canadian cannabis retail sector has not lived up to the expectations that were associated with the 2.0 market, the industry has recorded major advancements so far this year. From the number of open retail outlets to the types of products that are being offered to consumers, the landscape of the Canadian cannabis retail market has been slowly changing for the better.

When it comes to the Canadian medical and recreational cannabis market, there are a few companies that are leading the charge. The companies that we are most interested in are the ones that are also producing the cannabis and want to highlight two opportunities that our readers should be aware of.

The companies that we are focused on are Canopy Growth Corporation (WEED.TO) (CGC) and Aurora Cannabis Inc. (ACB.TO) (ACB). Although many analysts like to compare and find similarities between the businesses, we believe that Canopy Growth is lightyears ahead of Aurora Cannabis and do not expect to see Aurora Cannabis close the gap in the foreseeable future.

Through a series of acquisitions and investments, both companies have become highly levered to the Canadian cannabis retail market. Although Aurora Cannabis has announced more transaction than Canopy Growth on this side of the business, Canopy Growth has done a better job when it comes to executing and opening new retail outlets.

One of the main reasons we are more confident in Canopy Growth is related to the strength of the balance sheet. With almost $2 billion of cash on the balance sheet, Canopy Growth is well positioned to execute on previously announced initiatives, and we expect this aspect of the story to play an important role in the long-term success of the business.

Aurora Cannabis was a clear beneficiary of the legal cannabis movement in Canada and it raised more than $500 million of equity and debt capital. In the early years of the movement, Aurora Cannabis was able to raise equity capital like it was growing on trees. A lot has changed in the last year and the company has been primarily raising debt capital to support the business. Aurora Cannabis has also sold off several of its previous investments and did not profit nearly as much as expected on these investments.

Canopy Growth Expands Into Major Province

Last week, Canopy Growth reported a major development as it relates to the retail market and plans to open 10 retail cannabis locations in Alberta under its Tweed and Tokyo Smoke banners. The announcement is a testament to the company’s focus on a national retail expansion and we find this to be significant.

Alberta has been a major market for Aurora Cannabis and we expect Canopy Growth to take market share in the province. The expansion into Alberta will increase the number of Tokyo Smoke and Tweed retail cannabis stores in Western Canada to 29. By the end of the year, Canopy Growth expects to have 50 retail outlets located in provinces across Canada and we are bullish on the impact that the expansion will have on revenue, margins, and profit.

Over the next year, we expect the Canadian cannabis retail market continue to record strong growth and expect companies like Canopy Growth and Aurora Cannabis to be beneficiaries of this. Going forward, we plan to be selective with the companies we target in the cannabis retail market and continue to prefer operators that have a strong balance sheet.

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Authored By

Michael Berger

Michael Berger is Managing Partner of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.

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