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The Canadian Cannabis Sector Has Had Plenty Of Highs and Lows Two Years Into Federal Legalization

Oct 19, 2020 • 7:43 AM EDT
3 MIN READ  •  By Michael Berger
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Over the weekend, Canada celebrated the two-year anniversary of recreational cannabis being legalized. A lot has changed since the opening of the recreational market and our readers need to be aware of this. Many companies that were once considered to be leaders are on the verge of bankruptcy and this is a trend that has raised eyebrows

Today, we have highlighted seven Canadian Licensed Producers (LP) that have recorded transformational changes since the legalization of recreational cannabis in Canada. We believe that some of the companies that were highlighted will survive the current market environment, while others will fail.

  1. Aurora Cannabis Inc. (ACB.TO) (ACB) was once considered to be an industry leader. Since the opening of the recreational market, the company has closed several facilities, written off $1 billion of investments, lowered the headcount, brought in a new management team, and is running low on cash. We believe the business has not lived up to expectations and are not favorable on the direction it is going in.
  2. After a year of silence, HEXO Corporation (HEXO.TO) (HEXO) and Molson Coors (TAP.TO) are actually executing on the Canadian cannabis beverage market. The relationship is targeting the CBD market in the US. Although HEXO was also forced to close several facilities, write off prior investments for loses, lowered headcount, and has a dwindling cash balance, the market is favorable on the growth prospects that are associated with the Molson Coors relationship and expect this to be a key growth driver on a going forward basis.
  3. Aleafia Health Inc. (AH.TO) (ALEAF) has been quietly taking market share of the Canadian medical market while executing on the outdoor cultivation opportunity. This side of the business has supported the work that Aleafia Health has accomplished as it relates to the cannabis 2.0 vertical. Through the acquisition of Emblem, the company expanded into the EU and we are favorable on the leverage that it has to the international market. Since the start of the recreational market, Aleafia Health has been generating substantially more cash and this is a trend hat we are following and has a stronger balance sheet.
  4. Canopy Growth Corporation (WEED.TO) (CGC) has not lived up to expectations since the opening of the Canadian recreational market. Luckily, with almost %$2 billion of cash on hand, the company is well positioned to survive the current market environment and position itself for long-term growth. Canopy Growth recently shut down almost 2 million sq ft of cultivation space and has ratcheted down expenses. The company has written off $1 billion of assets but is still well capitalized. over the next year, we expect Canopy to increase market share in key markets
  5. Organigram Holdings (OGI.TO) (OGI) has not lived up to expectations that were associated with the recreational cannabis market and is attempting to capitalize on the 2.0 vertical. From the capital markets to less than stellar production capabilities, the company has been under pressure and has a dwindling cash pile. Organigram was expected to be a leader in the Canadian recreational market and the lack of execution has impacted sentiment around the stock
  6. Indiva (NDVA.V) (NVDAF) has been a surprise beneficiary of the Canadian cannabis 2.0 market. The company has strategic relationships to sell leading US cannabis brands in Canada and has been executing on a multi-faceted coast-to-coast growth strategy. We are impressed with how the story has evolved so far this year and consider it to be a potential leader in the Canadian 2.0 market
  7. WeedMD (WMD.V) (WDDMF) is another Canadian LP that has not lived up to expectations. A few year ago, we visited the company and were impressed the size and scope of the operation. WeedMD had a large outdoor grow facility but it has not been able to support the cannabis concentrates side of the business. The company formed CX industries to capitalize on cannabis oil market and has gone quiet since the formation. The company has seen an overhaul in the management team and recently quarterly financial results did not leave us impressed or even hopeful in the near term. We believe the management team needs to a better job at communicating with the market to turn the operation around
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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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