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Although the United States cannabis industry offers investors a lot of upside, it offers even more risk as a majority of the companies are fraudulent.
Many of the cannabis companies that trade on the OTC exchange are led by management teams focused on creating value for themselves, and rely on the sale of stock to stay in business.
Canada Remains a Bright Spot of the Industry
The Canadian medical cannabis industry continues to be a bright spot in the cannabis sector as its constituents are led by management teams that continue to execute on business initiatives and create value for shareholders.
One the biggest developments in 2015 was the victory by Justin Trudeau and the Liberal Party in the Canadian general election.
The outcome of the campaign was a huge victory for the Canadian cannabis industry and will serve as a catalyst for stocks levered to this industry. Justin Trudeau and the Liberal Party have said they will make cannabis legalization a priority.
A Growing Program
In 2014, Canada created a federal medical cannabis program called Marihuana for Medical Purposes Regulations (MMPR). The program has enabled the country to move from a system that allowed patients to buy from a single government‐approved grower or to either grow their own or purchase from non‐commercial growers, to a system of multiple commercial providers.
The Canadian medical cannabis industry is growing at an impressive 10% per month and it now has more than 75,000 patients.
There are currently 31 federally licensed medical cannabis producers in Canada under Health Canada’s MMPR.
Catalysts Ahead
Canada has announced plans to legalize recreational cannabis in spring 2017. Before recreational cannabis is legalized, we expect to see consolidation within the industry.
The government’s plan to legalize cannabis has made several licensed medical cannabis producers attractive investment opportunities to institutional investors, hedge funds, and investments, banks. Licensed medical cannabis producers have raised more than $50 million so far this year and we expect this number to increase exponentially during the back half of the year.
This has made capital much easier to access, which has supported growth initiatives like land acquisitions, construction costs, license/company acquisitions, production capacity increases, etc. The number of investments like this have increased significantly this year as licensed producers prepare for an extended period of accelerated growth following these various event-driven catalysts.
Top Picks
Yesterday, Canopy Growth Corp (CGC) (TWMJF) became the first cannabis producing company in North America to be listed on a major exchange. CGC now trades on the Toronto Stock Exchange and this is expected to open the company up to international institutional investors. Canopy Growth is the largest licensed producer in Canada and it is targeting international markets like Australia and Germany.
OrganiGram (OGI) (OGRMF) was the first licensed producer to report to be cash flow positive and the company is the second largest licensed producer in Canada. OrganiGram has seen strong revenue growth and it has reported to be profitable in its most recent quarter. The company has seen its stock rally more than 300% during the last year and we see further upside from here.
Aurora Cannabis Corp (ACB) (ACBFF) is the only licensed producer of medical cannabis in the province of Alberta, which has a population of 4.1 million people, and has registered patients across Canada, which has a population of 35 million. The company has been on-boarding new patients at record high rates this year and Aurora serves more than 4,500 patients. During the last quarter, ACB has fallen 20% and we see value at current levels.
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