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Is Aphria/Tilray The Best Suited Canadian LP To Capitalize On The U.S Upon Federal Legalization?

Mar 25, 2021 • 7:17 AM EDT
10 MIN READ  •  By Michael Berger
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With New York on the verge of legalizing recreational cannabis, we have seen an influx in questions concerning the US cannabis market.

The US cannabis industry was the biggest winner of the 2020 general election and has been receiving much more mainstream media coverage since then. The combination of 8 states passing medical and recreational cannabis legislation, the democrats gaining control of the House and the Senate, and Joe Biden winning the election has proved to be a recipe for success for the cannabis sector.

Over the next year, we expect the opening of new medical and recreational state markets to serve as an incremental growth driver for the US cannabis sector. We believe the US cannabis industry is in the early innings of a multi-decade growth cycle and are of the opinion that the incremental growth trend is just beginning.

Although we believe the US cannabis industry is just getting started, there has been some pushback on the phrase multi-decade growth cycle and want to explain our rationale. Virginia is a perfect example of our thesis. Earlier this year, the state legalized recreational cannabis and announced that sales would start in 2024. We expect other southern states to follow Virginia’s lead and this means it will take at least ten years for these states to be operating at full capacity.

If you look at states like Colorado or California, you will notice that it took several years for the recreational cannabis industry to ramp up. In the early years, operators in these states faced significant challenges from a regulation and distribution standpoint. From shutting down illegal retail dispensaries to having to apply for and be granted a variety of licenses, new markets take a few years to get started and this is a trend that we expect to continue.

Illinois is a great example of a new recreational cannabis market that faced the challenges that we previously highlighted but is recording incremental sales growth on a month-over-month basis. Although we are impressed with how the recreational cannabis market has taken off in Illinois, it took several years for the legislation to be implemented. The state is what we classify as a limited license market and we are bullish on the operators that have leverage to these types of markets.

By limiting the number of licenses that are granted in a state, operators have less to worry about from a saturation standpoint. Oregon is a good example of what could go wrong when there is no limit on the number of cannabis licenses that are granted. Oversaturation put considerable pressure on operators that were levered to Oregon and this is a risk that we try to avoid from a company standpoint.

The U.S. legal cannabis sector, already by far the largest in the world, is poised for further tremendous growth. In 2020, Americans spent $18.3 billion on cannabis, up by a staggering $7.6 billion over the prior year (source: This momentum is anticipated to continue, with Cowen & Company projecting around $40 billion in sales by 2025.

Several cannabis focused research firms have raised their estimates on the potential size of the US cannabis industry. Going forward, we expect these firms to continue to raise estimates on the size of the domestic market as new state markets open. Today, we want to highlight 3 companies that are executing on a US growth strategy and believe that our readers need to be aware of these operators.

Aphria – Tilray Own Strategic Non-THC US Assets

In late 2020, Aphria (APHA.TO) (APHA) and Tilray Inc. (TLRY) announced a mega-merger and this is a transaction that caught our attention. As it relates to the US cannabis market, these two companies do not own assets that sell cannabis products that contain tetrahydrocannabinol (THC) but we expect this to change once federal law changes in the US.

Prior to the merger being announced, Aphria acquired Sweetwater Brewing Company, a US craft beer maker, for approx. $300 million. The transaction provided Aphria with strategic infrastructure in the US and we are favorable on the potential for it to capitalize on the cannabis beverage market once federal law allows for it.

Tilray has attractive leverage to the US market through the ownership of Manitoba Harvest, a branded hemp, CBD and wellness product company that has access to 17,000 stores in North America. In the event of federal legalization, the combined company expects to be well-positioned to capitalize on the US market due to the brands that it owns, the existing distribution system, and its track record in the consumer-packaged goods (CPG) and the cannabis markets.

While the combined company does not have a relationship that is similar to the one that Canopy Growth Corporation (WEED.TO) (CGC) has with Acreage Holdings, we are favorable on the direction the management team is heading and expect it to compete for market share with Canopy Growth and leading US operators.

Going forward, we believe the combined company will be highly focused on strategic markets in the European Union (EU) and are favorable on the exposure it has to this region. As soon as the law changes in the US, we expect the combined company to continue to focus on penetrating emerging international markets and will be closely following the opportunity on a going forward basis.

Australis is Executing on a Capital Light US Expansion

Australis Capital Inc. (CSE: AUSA) (OTC: AUSAF) is a cannabis operator that we are particularly excited about after the management team announced a series of strategic investments and acquisitions. The company is executing on a capital-light growth strategy and we are favorable on how the business is positioned to be a beneficiary of the US cannabis market.

Earlier this year, Australis completed the acquisition of 51% of ALPS and was granted an option to acquire the remaining 49%. In the near-term, we expect ALPS to play a key role in how the company is able to execute on its capital light expansion. ALPS is a leading design, construction management, commissioning and post commissioning consultancy company for cannabis and traditional horticultural crops (e.g. fruits, vegetables, mushrooms, and algae).

ALPS is responsible for constructing some of the largest state-of-the-art cannabis facilities on the planet to date, and we expect the asset to prove to be a major revenue generator for the business. We also expect Australis to find significant synergies from the acquisition as it continues to execute on its growth strategy and believe the market is discounting this aspect of the story.

Through its core business, ALPS brings considerable revenue to Australis, with numerous catalysts identified for rapid growth. Its standing within the cannabis industry as the brand of choice for the delivery of facilities that produce high-end cannabis at very low cost is key to both ALPS’ growth prospects in this sector, and the execution of the capital-light strategy.

Shortly after the ALPS transaction was complete, Australis reported to have entered into a definitive agreement with Green Therapeutics LLC (GT) to acquire the asset. The transaction is expected to be completed in two parts with the first being the acquisition of a subsidiary of GT that owns unregulated assets (i.e. GT’s brands and certain brand licensing and management agreements).

GT is an award-winning, Nevada -based cannabis company that has a strong portfolio of branded high-end dried flower and designer/luxury derivative products. The company was co-founded by former MedMen President Dr. Duke Fu and is led by a strong team of medical professionals and pharmaceutical manufacturing experts.

The transaction is expected to be immediately accretive to Australis and we will monitor how the businesses are able to integrate once the deal is approved. The management team expects to generate revenue from high-margin products through brand licensing and management agreements. Once Australis transfers all of the Nevada licenses, the management team forecasts revenue acceleration and we are bullish on this aspect of the story.

We consider Australis to be a differentiated opportunity and are favorable on the avenues that it has for growth. The company has developed a multi-faceted US expansion strategy that is unique and provides it with more financial flexibility. It will be challenging for other companies to replicate this type of business model which provides the company with what we believe are sustainable competitive advantages.

Going forward, we will be highly focused on how Australis is able to integrate the assets that it has acquired and consider this to be an important aspect of the story. We believe that the market is discounting the growth potential that is associated with the company and this is an opportunity to be aware of.

4Front is Executing on a Multi-State Expansion

4Front Ventures Corp. (CSE: FFNT) (OTCQX: FFNTF) is a US cannabis operator that we have been following and is an expansion story to be aware of. The company is headquartered in Arizona and has cannabis operations in Illinois, Massachusetts, California, Michigan, and Washington state.

We are favorable on the diversity of the assets that are owned by 4Front and are especially excited about the opportunities in Illinois, Massachusetts, and Michigan. Recreational cannabis is legal in these three markets and we consider these states to be attractive long-term opportunities.

Last week, 4Front reported to have entered into definitive agreements with both the land owner and an affiliate of Innovative Industrial Properties, Inc. (IIPR) to construct up to 558,000 square foot cultivation and production facilities in Illinois. Once completed, the facility would be the largest in the state (that we are aware of) and we are bullish on this market.

There is simply not enough recreational cannabis available to sell to consumers in Illinois and the revenue numbers that have been reported by the state have been impressive to say the least. 4Front is positioned to capitalize on a burgeoning recreational cannabis market and we expect the business to use the proceeds from the transactions to expand its footprint.

4Front continues to be laser focused on capturing market share in strategic recreational markets. The company has a large portfolio of high-quality, affordable cannabis products and we find this to be an important aspect of the story. Although 4Front has been successful in Illinois, we believe the business is just getting started and the new facility should allow it to introduce its full array of products to the market and we are favorable on the growth prospects that are associated with the operation.

By the fourth quarter of 2022, 4Front expects Phase 1 of its expansion to be operational. This phase consists of 258,000 square feet that is divided into 65,000 square feet of flowering canopy and 70,000 square feet of manufacturing space for the development of branded flower, edibles, tinctures, concentrates and other manufactured products.















Pursuant to an agreement between StoneBridge Partners LLC and Australis Capital Inc. we have been hired for a period of 180 days beginning February 8, 2020 and ending August 8, 2021 to publicly disseminate information about (AUSA) including on the Website and other media including Facebook and Twitter. We are being paid $6,000 per month (AUSA) for or were paid “ZERO” shares of unrestricted or restricted common shares. We plan to sell the “ZERO” shares of (AUSA) that we hold during the time the Website and/or Facebook and Twitter Information recommends that investors or visitors to the website purchase without further notice to you. We may buy or sell additional shares of (AUSA) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information.

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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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