How Best To Invest In The Marijanna Boom-Part 2

- August 10, 2017

In part I, I covered the Marijuana Boom and its promising 30% CAGR growth outlook.  In Part 2, I will look into 6 Marijuana Stocks that will benefit the most when Canada legalizes recreational marijuana use in 2018.  Will focus mainly on the big players and growers in Part 2, and in the final series Part 3, will look at marijuana support stocks.  Prime Minister Justin Trudeau and the Canadian government have said they will legalize recreational marijuana sometime in 2017, with sales beginning January 2018.  This is a huge catalyst for Marijuana Stocks.

Canada To Legalize Recreational Marijuana In 2018, Marijuana Boom Is Coming

I call this a Marijuana Boom for several reasons.  Canadian medical marijuana industry is only around CAD 100m in size as of now.  However, when legalized the Canadian legal recreational marijuana industry could grow from nothing to CAD 6 billion by 2021, with 3.8 million legal recreational users in Canada.

Cannacord is forecasting a marijuana shortage.  Given an average price of ~CAD 8/gram, the recreational market would be worth ~CAD 6 billion pa.  Significant barriers to entry including licensing requirements would also benefit existing licensed producers, such as those discussed below.

Source

 

Aurora Cannabis (TSE:ACB) (OTCMKTS:ACBFF) 

Aurora Cannabis (TSE:ACB) (OTCMKTS:ACBFF) is the largest holding in the marijuana ETF (HMMJ) with an 11.37% weighting.  Aurora is a licensed producer of medical marijuana in Canada.  Its activities include cultivating, harvesting, and selling of Canadian medical marijuana.  The company was founded in 2006 and is headquartered in Vancouver, Canada.

Aurora Cannabis is currently constructing an 800,000 square foot production facility in Alberta Canada called “Aurora Sky“.  The new hybrid greenhouse facility has a footprint larger than 16 football fields.  It is expected, on completion to be the largest, most advanced and most automated cannabis production facility in the world.  Aurora Sky will be capable of producing in excess of 100,000 kilograms of high quality, low cost cannabis per year, with completion of the new facility targeted for October 2017.

This would be in addition to their current 55,200 square foot, expandable, state-of-the-art production facility in Mountain View County, Alberta, Canada.   Aurora is already doing well from medical marijuana.  However a key catalyst would be if Canada legalizes recreational marijuana use in 2018, which is looking quite likely.

Current market cap is CAD 877m, and enterprise value is CAD 819m.  The company had CAD 24.1m revenue in 2017, and is not yet profitable.  Revenue is expected to increase rapidly to CAD129m in 2018, and CAD 263m in 2019.  2018 EV/Revenue is 6.81.  The stock is currently not exactly cheap, but should the revenue come through as forecast or even greater with marijuana legalization, profits would rapidly increase.  In return the current stock price will have seemed quite good.  Analysts’ consensus estimate is CAD 3.05, representing 28% upside.  I rate the Aurora Cannabis (TSE:ACB) (OTCMKTS:ACBFF) stock a strong speculative buy, especially if you believe recreational marijuana will be legalized soon in Canada.

Canopy Growth Corp (TSE:WEED) (OTCMKTS:TWMJF)

Canopy Growth Corp (TS:WEED) (OTCMKTS:TWMJF) is the second largest holding in the marijuana ETF (HMMJ) with an 11.04% weighting.  Canopy produces and supplies an unmatched selection of premium medical marijuana.  It products treat symptoms such as chronic pain, seizures, muscle spasms, nausea and loss of appetite. The company was founded in 2009 and is headquartered in Smith Falls, Canada.

Canopy Growth Corp (TSE:WEED) (OTCMKTS:TWMJF) is another major player in the current marijuana market that would benefit greatly if Canada legalizes marijuana in 2018.

Current market cap is CAD 1.495m, and enterprise value is CAD 1.408m.  The company had CAD 40m revenue in 2017, and is not yet profitable.  Revenue is expected to increase rapidly to CAD111m in 2018, and CAD 304m in 2019.  2018 EV/Revenue is 12.7, and 2019 EV/Revenue is 5.0.  Similar to above, the stock is priced for strong revenue growth.  Analysts’ consensus estimate is CAD 12.43, representing 40% upside.  I would rate Canopy Growth Corp (TSE:WEED) (OTCMKTS:TWMJF) stock a good Speculative Buy.

Aphria Inc (TSE:APH) (OTCMKTS:APHQF)

Aphria Inc (TSE:APH) (OTCMKTS:APHQF) is the third largest holding in the marijuana ETF (HMMJ) with a 10.83% weighting.  Aphria Inc. engages in the production and supply of medical marijuana.  The company was founded in 2011 and is headquartered in Leamington, Canada.

Aphria’s products include alien dawg, champlian indica, grower’s blend, champlain-sativa and blueberry in case you were wondering.

Current market cap is CAD 798m, and enterprise value is CAD 796m.  The company had CAD 20.4m revenue in 2017, and a net income of CAD 4.2m.  Revenue is expected to increase rapidly to CAD 45m in 2018, and CAD 147m in 2019.  2018 EV/Revenue is 17.6, and 2019 EV/Revenue is 5.4.  Valuation is about right given the stock is profitable with huge revenue growth forecast ahead.  Analysts’ consensus estimate is CAD 8.92, representing 55% upside.  Aphria Inc (TSE:APH) (OTCMKTS:APHQF) Stock is a Speculative Buy with plenty of upside.

GW Pharmaceuticals ADR (NASDAQ:GWPH)

GW Pharmaceuticals (NASDAQ:GWPH) is the 4th largest holding in the marijuana ETF (HMMJ) with a 10.54% weighting.  GWPH researches and develops cannabinoid prescription medicines for the treatment of cancer pain, multiple sclerosis, and neuropathic pain.

Market cap is US 2.9 Billion.  Earnings are not yet positive, with increasing losses.  Analysts’ consensus estimate is USD 149.87, representing 35% upside.  I would prefer to see a pathway to profit before investing.  With GWPH Stock price at around USD $100 a share,  Pass.

Cronos Group Inc (CVE:MJN) (OTCMKTS:PRMCF)

Cronos Group Inc (CVE:MJN) (OTCMKTS:PRMCF) is the 7th largest holding in the marijuana ETF (HMMJ) with a 6.01% weighting.  Cronos Group, Inc. engages in the investment in firms which are licensed to produce and sell medical marijuana.
Its portfolio includes In The Zone, Peace Naturals, Whistler Medical Marijuana Co., ABcann, Hydropothecary, Vert Medical, and Evergreen Medicinal Supply.  The company was founded in 2012 and is headquartered in Toronto, Canada.

Analysts’ consensus estimate target price is CAD 3.80, representing 74% upside.  Currently have no opinion on this company.

Organigram Holdings Inc (CVE:OGI) (OTCMKTS:OGRMF)

Organigram Holdings Inc (CVE:OGI) (OTCMKTS:OGRMF) is the 9th largest holding in the marijuana ETF (HMMJ) with a 4.70% weighting.  OrganiGram Holdings, Inc. engages in the production and sale of medical marijuana.  Its main focus is on producing quality, condition specific medical marijuana for patients in Canada.  The company was founded in 2010 and is headquartered in Vancouver, Canada.  Organigram is a smaller producer with plenty of potential to grow.

OrganiGram has a current market cap of CAD 232m, and forecast rapid growth in revenue to CAD 109m by 2019.  Analysts’ consensus estimate target price is CAD 3.89, representing 74% upside.  I would rate Organigram Holdings Inc (CVE:OGI) (OTCMKTS:OGRMF) Stock a strong speculative buy.

Conclusion On The Marijuana Boom And Marijuana Stocks

Marijuana legalization for both medical and recreational use is growing in popularity in the USA and Globally.  Canada’s likely legalization of recreational marijuana use in 2018 will be a huge catalyst to the industry.  Moreover,  other countries such as Australia will follow with legalized recreational use.  Some of the good news is already priced in.  However should legalization occur in Canada and follow in other countries the above mentioned stocks will do very well.

In this group, I would select Aphria Inc (TSE:APH) (OTCMKTS:APHQF) stock as my favorite as they are already showing a small profit, and have a similar pathway to higher revenue and profit.  Followed by Aurora Cannabis (TSE:ACB) (OTCMKTS:ACBFF),  Organigram Holdings Inc (CVE:OGI) (OTCMKTS:OGRMF) and Canopy Growth Corp (TSX:WEED) (OTCMKTS:TWMJF) Stock to add as a speculative buy. You can read Part 1 on How Best To Invest In The Marijuana Boom here.

 

 

 

 

 

 

 

 

 

 

This entry was posted in 2017 Stock Outlook, Hot Stocks, Mergers & Acquisitions, Retail, Timely Analysis Bookmark the permalink.
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  1. By How Best To Invest In The Marijuana Boom – Part 3 on August 13, 2017 at 11:50 am

    […] part 2, I looked at the main 6 Marijuana Stocks likely to benefit from the Marijuana Boom legalization […]

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