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Many investors are hoping the deal will result in Constellation—the maker of Corona beer—launching cannabis-infused beverages. While such products likely won’t be available in the U.S. any time soon as marijuana remains illegal on the federal level, they could soon pop up in Canada.
In two months, recreational marijuana will go on sale in our neighbor to the north, making the country the first industrialized nation in the world to fully legalize the drug.
Many companies, including Constellation Brands and Canopy Growth, are seeking to reap the rewards of Canada’s legalization of pot – and many are already announcing their plans.
Tweed, a subsidiary of Canopy Growth, announced Monday that it had landed a deal to sell pre-rolled joints, cannabis oils, dried flowers, and softgel capsules in Ontario beginning on October 17.
Tilray (NASDAQ: TLRY), which just went public last month, has spiked more than 60% in the last five days spurred on by news that it has inked a supply agreement with the Ontario Cannabis Retail Corporation through its High Park Holdings affiliate. The company is expected to sell its marijuana products under the CANACA, Irisa, and Marley Natural brands.
Tilray has also made similar agreements with British Colombia, Manitoba, and Quebec provinces.
Cronos Group (NASDAQ: CRON) is also up nearly 30% for the week after its announcement that it would also be selling its products through the Ontario Cannabis Retail Corporation. It has recently inked other distribution deals with the provinces of British Columbia, Nova Scotia, and Prince Edward Island.
Canada’s legalization of pot is expected to yield in the neighborhood of $5 billion in annual sales. With such a massive figure, it’s no wonder why seemingly all of the stocks in the sector are on the rise. Here’s why these three stocks look like good bets right now.
Canopy Growth Corp (NYSE: CGC)
It should be no surprise CGC is on this list.
Canopy Growth is Canada’s top cannabis stock, its most recognizable brand, and is currently the world’s largest pot stock by market cap. It’s also a global player with subsidiaries and partnerships world wide, including in Australia, Brazil, Chile, Denmark, Germany, Jamaica, and Spain.
But what’s most exciting to me about Canopy Growth right now is that the company is—of all marijuana producers—expected to see the highest sales next year after Canada’s legalization begins on October 17.
The company has a whopping 5.6 million square feet of production capacity, and Wall Street believes the company could rake in as much as $687.8 million in sales next year.
Canopy Growth already has supply agreements with several Canadian provinces ahead of legalization, and its ramped up production should set it up well to nab significant market share in the recreational market. And then, of course, is its partnership with Constellation Brands which is anticipated to produce cannabis-infused beverages that could see nationwide distribution.
The company is one of the top five Canadian growers in the medical marijuana space, and it happens to be one very low cost producer at less than CA$1 per gram – setting the company up for sizable margins.
Aphria is very well-positioned for recreational distribution. It recently struck a deal to be the exclusive Canadian distribution partner for Southern Glazer’s, the largest wine and spirits distributor in North America.
The company also has two key production projects coming online in January 2019 which should increase its production capacity by 2.2 million square feet and 220.000 kilograms annually.
Aphria is expected to deliver $356 million in sales in FY19, and analysts have an average price target for the stock of C$24.75 – 120.2% higher than today’s price.
GW Pharmaceuticals (NASDAQ: GWPH)
GW Pharmaceuticals (NASDAQ: GWPH) is the only non-grower on this list, but this cannabinoid-based drug developer could see sales jump from just $19.2 million in 2018 to $152.2 million in 2019.
The big catalyst for this company was the FDA approval of its drug Epidiolex—a cannabidiol (CBD)-based oral treatment for two rare forms of childhood-onset epilepsy, Dravet syndrome and Lennox-Gastaut—in late June making it the first cannabis-derived therapy to get a thumbs-up from the FDA.
“This is the first FDA-approved drug that contains a purified drug substance derived from marijuana,” the FDA’s June 25 press release said. “It is also the first FDA approval of a drug for the treatment of patients with Dravet syndrome.”
While the new drug comes with a hefty estimated price at $32,500 per year, if insurance companies will cover the treatment, doctors will likely prescribe it and the parents of patients will be thrilled.
Earlier this month, analysts at Cantor Fitzgerald set an Overweight rating for GWPH with a price target of $211 – nearly 49% higher than today’s price.