Unless you’ve been totally unplugged on a tropical island somewhere for the past few weeks, you’ve heard that Canada finally passed legislation that legalizes recreational use of marijuana nationwide.
Legalization will go into effect this fall, and a few Canadian cannabis stocks are likely to explode higher in this budding sector.
Sales will begin on October 17, and will bring it enthusiasm not just from consumers, but also investors for marijuana companies.
“It’s a really exciting time as an investor,” said Jason Spatafora – a Miami-based trader and investor, and co-founder of marijuanastocks.com. “Weed is to Canada what Silicon Valley is to the U.S. We will see a lot more money flowing in.”
Marijuana stocks in general have so far had a rough year in 2018, but the weed market in Canada is growing rapidly and there could be strong upside potential for these Canadian marijuana stocks.
Canopy Growth Corporation (NYSE: CGC)
Canopy Growth is the world’s largest publicly traded pot stock by market cap, and is likely to see a significant surge when legalization goes into effect.
The company is one of the few stocks in the marijuana space that has actually generated a solid return so far in 2018, which is reflected in the stock – up 25% this year. Can it continue to rise? i think so, here’s why.
Ahead of legalization going into effect in October, Canopy already has supply agreements for recreational cannabis with several provinces and has been increasing its production capacity in anticipation of increased demand.
But for Canopy Growth, the more compelling story is in the global medical marijuana market which promises to be far larger than the total Canadian market. Canopy has a presence in Europe—and is expanding into other international markets as well—and reported record sales in Germany in its fiscal fourth quarter.
OrganiGram Holdings (OTC: OGRMF)
Organigram is unique in the grower space. The company operates one single grow site which helps to centralize the company’s costs, thus improving its margins.
Its Moncton, New Brunswick location is on track to be completed by April 2020 and will yield 113,000 kilograms per year at full capacity. Capacity in the meantime shouldn’t be an issue for the company as it’s expected to produce 81,000 kilograms per year by July 2019.
The company has supply agreements in place with four Canadian provinces ahead of legalization, including New Brunswick, Prince Edward Island, and Manitoba, and most recently inked a deal with the Alberta Gaming, Liquor & Cannabis Commission to supply recreational marijuana.
What’s interesting about Organigram is that isn’t just focused on dried weed. The company also produces cannabis oil which, though a niche market, commands a higher price point than dried weed and comes with a much juicier margin.
Last quarter, the company sold 552,000 milliliters of their cannabis oil – a 297% increase from the same quarter a year ago.
Focusing on cannabis in both its oil and dried forms, while operating out of a central location, helps the company do more with each dollar of revenue making this stock one to watch.
Aphria is down nearly -39% year-to-date, but the same growth catalysts that apply to Canopy Growth apply to Aphria and it should be a winner in the long run.
The company is one of the top five Canadian growers in the medical marijuana space, but Aphria is one of the only growers that chose to launch a separate brand for the recreational market. The Solie brand was introduced in April, and Aphria CEO Vic Neufield says that it will be “the first of many adult-use brands” from the company, revealing the company’s ambitions to diversify.
What’s most attractive for me for Aphria is that it is able to produce its cannabis at less than CA$1 per gram, making if a very low cost producer. And lower cost equals higher margin.
The company is also well positioned for distribution when legalization hits. It recently inked a deal with the largest wine and spirits distributor in North America, Southern Glazer’s, to be its exclusive distribution partner in the Canadian recreational marijuana market.