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Why Did Canadian Cannabis Stocks Plunge Yesterday??

Dec 15, 2016 • 1:10 PM EST
8 MIN READ  •  By Michael Berger
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Publicly traded companies levered to the Canadian medical cannabis industry came down from their highs yesterday and many investors are trying to determine why…

Although there was no specific reason for this weakness, we think these stocks moved lower due to concerns as to the expected start date for the country’s legal recreational cannabis program.

Yesterday’s move lower was a response to a sector-wide rally on Monday which was the result of favorable recommendations from a federal task force for the recreational cannabis industry.

Former deputy prime minister and chair of the federal government’s cannabis task force Anne McLellan recently told CNBC, “I think one of the things we were struck by was how complex this transition actually is, and not only in terms of drafting legislation at the federal and provincial levels and putting in place all the infrastructure and training, but the psychological transition. Going from something that has been prohibited for decades, to a world where it’s a legalized product, sold in a regulated market — so the transition is going to be enormous.”

A Long Road Ahead

First, the Department of Justice Canada will have to begin a widespread effort to change the criminal code and other related federal laws. This project will get started in the spring.

After the agency develops a new proposed law, the legislation will need to be passed by Parliament. The proposed new legislation may face obstacles if the government could decide to go in a different direction and this could delay the program’s start date.

Once the federal laws have been changed, Health Canada will need to design a regulatory system for cannabis before the provinces determine how to develop a regulated system for distribution and enforcement.

Buy the Dips

The legal cannabis movement has created unprecedented opportunities for investors and this growth cycle will mint more millionaires than the tech boom.

Investors looking for a new growth field should take advantage of the recent weakness within the Canadian cannabis industry and focus on companies that will see remarkable growth for years to come.

Learn about three high-quality stocks levered to the legal Canadian cannabis industry. We consider these companies to be a long-term investments and encourage you to conduct thorough due diligence before going forward.

Aphria (APH.V) (APHQF)

Aphria is one of the largest licensed producers of medical cannabis in Canada and the company is well positioned to capitalize on this rapidly growing opportunity on account of organic and inorganic growth initiatives.

Yesterday, the company announced a purchase and sale agreement to acquire 200 acres of fully serviced vacant land for $6.24 million located at 521 Mersea Road 8, Leamington, Ontario. The land does is not next to Aphria’s existing operations and it needs to receive a new site license from Health Canada for it. The company expects the transaction to close in January.

Aphria also announced that it removed all conditions attached to a purchase and sale agreement to acquire 5 acres of largely vacant land for $750,000. The land located on the eastern border of its existing Health Canada approved site license. The deal is expected to close in late December 2016 or early January. The property will be merged into Aphria’s existing address so the company does not need to apply for a new Health Canada site license for it.

Aphria CEO Vic Neufeld said, “Aphria, with 52 acres of land on its primary site licence, is well on its way to its previously discussed 1 million square feet of growing space. Securing a second site represented an important part of Aphria’ diversification plans. Being able to secure a 200-acre site, in one acquisition, positions Aphria to rapidly advance its expansion plans, when demand for recreational use of cannabis is legalized.”

Aurora Cannabis (ACB.V) (ACBFF)

Aurora Cannabis has been selling cannabis products for less than 12 months and continues to register new patients at industry leading rates. The company has been executing on its business plan as it continues to increase its market share in the Canadian cannabis market.

At the end of November, Aurora Cannabis announced that it has broken ground on an unprecedented 800,000 square foot production facility that will be known as Aurora Sky.  The hybrid greenhouse facility is expected to be the largest and most advanced cannabis production facility in the world.

Today, the company released on update on this project and said that the facility is currently under construction at the Edmonton International Airport (EIA). We are favorable on this location due to its strategic advantages which include access to reliable low-cost power, and unparalleled proximity to infrastructure and essential services, such as gas, water, sewage, public transportation, courier services, and international customs for clearing supplies and equipment.

The company said that it believes that Aurora Sky will be able to produce 100,000+ kilograms of high quality cannabis per year. The location of the new facility provides unrivaled access to transportation, industrial infrastructure, power, water, gas, and courier services. Aurora also expects the high level of automation at the facility to provide for ultra-low per-gram cost of production. The company expects the facility to be completed in October 2017.

Yesterday, Aurora and Radient Technologies (RTI.V) announced a memorandum of understanding to evaluate an exclusive partnership with regard to the joint development and commercialization of high-quality standardized cannabinoid extracts.

Radient currently operates from a 20,000 square foot, GMP compliant, Natural Health Products Directorate (NHPD) licensed facility in Edmonton, Alberta, extracting natural ingredients for a range of industries. Radient operates under strict quality controls and owns patented extraction technologies that were originally developed by scientists at Environment Canada.

OrganiGram Holdings (OGI.V) (OGRMF)

OrganiGram is one of the 36 federally licensed medical cannabis producers in Canada and the company is the only fully licensed medical cannabis producer east of Quebec.

On Monday, OrganiGram reported its full year financial results for the year that ended on August 31st. During the year, OrganiGram sold more than 730,000 grams of medical cannabis, representing more than 450% over the prior year. Highlights from its full-year results include a more than 500% increase in revenue and a 29% improvement in adjusted margin.

OrganiGram continues to grow at rapid rates and the company also offers investors leverage to United States cannabis industry.In early September, OrganiGram announced that it entered into an exclusive product development and distribution agreement with TGS International. The agreement will provide for consulting services related to the development and operation of a commercial scale cannabis extracts production and processing facility as well as the exclusive licensing in Canada of over 225 unique cannabis products.

TGS International is an affiliate of The Green Solution, a vertically-integrated cannabis company that owns and operates over 300,000 square feet of state licensed and regulated production, processing, and manufacturing facilities as well as 11 medicinal and/or adult-use retail locations in Colorado with three additional locations set to open by the end of 2016.

TGS has commercially developed an extensive line of cannabis extract and derivative products. Their award winning proprietary brands, The Green Solution and NectarBee have generated $100+ million in cumulative sales through their affiliated Colorado operations, including $43+ million in 2015.




Important Investor Disclosures 

Disclosure.  Compensated Affiliate.  This report was authored by and is property of StoneBridge Partners LLC.  All information and data relied upon in drafting this report is publicly available.  The author believes and considers its sources to be reliable, but does not guarantee the accuracy or completeness of any information contained in this report.  Any and all information, data, analyses and opinions are provided for informational purposes only and is not intended, in any manner, as investment advice.  Any projections or other information generated by StoneBridge Partners LLC regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.  None of the material contained in this report is intended as a solution or offer to sell or purchase a specific stock or any other investment.  This report is not directed to, or intended for distribution or use by, any person or entity that is a citizen, resident or located in any municipality, state, country or other jurisdiction where the distribution, publication, availability, or use of this report is contrary to any governing law or regulation.  The securities discussed in this report may not be eligible for purchase and/or sale in certain jurisdictions or by particular individuals.  It is important that you check any and all governing laws and/or regulations that may be applicable in your jurisdiction.  Investing in securities of issuers organized outside of the United States, including ADRs, entail certain risks.  The securities of non-United States issuers may not be registered with, nor be subject to the reporting requirements of the United States Securities and Exchange Commission.  Please contact a Financial Advisor for professional advice regarding any and all securities investments.  This report is intended for informational purposes only.  StoneBridge Partners LLC’s officers, directors, employees, affiliates, or subsidiaries may have positions in securities covered by StoneBridge Partners LLC.  StoneBridge Partners LLC receives compensation from the company and/or has a position in the securities mentioned in this report

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Authored By

Michael Berger

Michael Berger is Managing Partner of StoneBridge Partners, LLC and Founder of Prior to entering the cannabis industry, Michael was an Equity Research Analyst at Raymond James Financial covering the Energy Sector. Michael has been featured in publications such as The Street, Bloomberg, US Money News, and hosts various cannabis events across North America.


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