In spite of increasing support for legal cannabis in the United States, Canada’s more hospitable legislative environment has enabled it to cast the blueprints for cannabis progressivism. Medical marijuana has been legal nationwide in Canada since 2001, though the industry has only begun to take off in the past several years. Now with the legalization of recreational marijuana on the horizon for Canada, investors, industry players and consumers alike are eagerly anticipating the industry boom, as Canada becomes the second country in the world to legalize recreational adult-use weed.
Everything seemed to be rolling along smoothly until a road bump jarred marijuana stocks investors and industry players two weeks ago, when Canadian Health Minister, Ginette Petitpas Taylor, made the announcement of a delayed launch.
The original plan was for recreational sales of adult-use weed to begin this July, pending Parliament approval. The revised plan now has sales pushed out 8 to 12 weeks past the scheduled Senate vote on June 7.
This news did not sit well with the major Canadian cannabis companies or Canada marijuana stocks investors. The anticipation of the coming legalization and subsequent sales growth has set valuation premiums through the roof for marijuana stocks. News of the delay deflated some of that excitement among investors.
For some industry players, the delay may come as a welcome relief as they are afforded additional time to play catch up with the more prepared among their peers. For astute marijuana stocks investors, these may be the Canadian marijuana stocks to invest in.
Marijuana stocks Aphria (NASDAQOTH:APHQF)
Don’t be fooled by the sight of marijuana stocks Aphria’s share values falling along with its peers at the announcement of the delay in legalization. In time, this delay may work in Aphria’s favor.
Among Aphria’s company goals is to become a top-four Canadian cannabis producer; and at this point in time, they are on course to deliver roughly 230,000 kg of weed by February next year. Over half of this production – 120,000 kg – is expected to come from Aphria’s shrewd partnership with Double Diamond Farms. A yield of another 100,000 kg annually is anticipated from the company’s $100 million four-phase expansion that, upon completion, will offer one million square feet of production space. The recently finalized acquisition of Broken Coast Cannabis will add a projected 10,500 kg per year.
The problem for marijuana stocks Aphria is not the amount of product to offer, but, the timing of when it will be available on the market – several months behind its competitors.
With Aphria’s projects set for completion a few months after its peers, the company may lose out on long-term supply deals that could otherwise be critical for their success. But, as the launch for legalization is delayed in Canada, Aphria may have time to close some of the delivery gap.
One of the qualities that sets Aphria apart is its efforts at organic expansion versus dependency upon acquisitions to do the heavy work. Yes, the process is a bit slower, but, it gives the company the advantage of better cost control and the ability to remain profitable. The evidence of this can be seen in Aphria’s profit reports for the past two years, where it stands as one of only two pot stocks to achieve full-year profits. The company is also among a tiny group of growers with the ability to engage in foreign exports to legalized countries, mainly European.
All in all, marijuana stocks from Aphria remain an intriguing option for marijuana stocks investors to track, considering the management’s maintained focus on profitability.
Marijuana stocks of Cannabis Wheaton Income Corp. (NASDAQOTH:CBWTF)
Another company that may stand to benefit from the Canadian legalization delay is Cannabis Wheaton – the marijuana industry’s first royalty stock.
Cannabis Wheaton enjoys a symbiotic relationship with growers who benefit from the company’s supply of upfront capital to expand growing capacity or their lines of product in exchange for supplying Cannabis Wheaton with a share of their crop yield at below-market rates. Cannabis Wheaton is able to then pocket the difference after selling the received weed at market rates. On average, this translates into roughly a 60% return for each deal.
As a brand new company, investors might assume the delay to be bad news for the marijuana stocks of Cannabis Wheaton; but, there’s good news.
Between start-up costs, interest incurred on debt, and the dilution of value resulting from bought-deal offerings, revenue can become more of an urgent matter to appease shareholders.
The good news, however, is that the majority of the 15 deals forged by the company have been with growers who are off-the-radar. A delay gives these smaller operations extra opportunities to work out the kinks in production and ensure Cannabis Wheaton can receive its licensed quota of deliveries. Cannabis Wheaton, like Aphria, intends to bring 230,000 kg of marijuana to the market in the next year.
Marijuana stocks Emerald Health Therapeutics (NASDAQOTH:EMHTF)
In the same vein as Aphria, grower Emerald Health Therapeutics may ultimately benefit from Canada’s delay in legalizing recreational use marijuana. All things considered and finalized, Emerald Health may be looking at an outstanding amount of growing capacity – as much as 5.8 million square feet. From its British Columbia headquarters, it claims one million square feet. Another 1.1 million square feet of space comes from their Village Farms International-owned facility being transformed from tomato to cannabis production. The potential for a lease of 3.7 million additional square feet through their Pure Sunfarms partnership with Village Farms in B.C. is likewise a good sign.
Even with all this growing capacity, Emerald Health is not likely to catch up with major players whose operations stood prepared to deliver at the original July launch. But, even one or two months gives the company more breathing room than one might expect, hopefully enabling Emerald Health to make significant progress in its retrofit and construction projects to compete with the bigger players for some of the much-coveted long term supply agreements.
All in all, marijuana stocks Canada investors can find some silver linings in the delay.
(For more information, read Pump the Brakes! Canada Delays Recreational Sales, What Does That Mean for Marijuana Stocks?)