Canada has achieved what it set out to accomplish: becoming the first developed country to legalize marijuana for recreational use.
Last Tuesday, the Cannabis Act (or, bill C-45) passed its second Canadian Senate vote by an overwhelming majority. The final stretch involves receiving royal assent, followed by eight to 12 weeks of preparation among the provinces and territories; then the recreational market, expected to be sizable, will finally open.
While the majority of Canada’s marijuana stocks experienced a rise directly following the news of this legislative milestone, three top the list for the best marijuana stocks to buy now.
The following three cannabis stocks are believed to be the top choices for investors to purchase following the Senate’s historic vote: Canopy Growth Corporation (NYSE:CGC), Aurora Cannabis (NASDAQOTH:ACBFF), and Aphria (NASDAQOTH:APHQF).
1. Canopy Growth Corporation should do well in the recreational marijuana market.
Canopy Growth can check the two major ingredients for success in the upcoming expanded market off its list: ample production capacity and a solid retail infrastructure.
The company’s current growing space spans more than 2.4 million square feet across its facilities. But, Canopy is not stopping there; some time next year, the company will have expanded its growing operations to beyond 5 million square feet. While calculations of Canopy’s production capacity were guesswork, at best, the general expectation is it will be capable of producing above 780,000 kilograms per year once operating at full capacity.
Then, there are supply agreements: Among Canada’s 10 provinces and three territories, Canopy Growth has secured recreational marijuana-based supply agreements with three, in addition to announcements of coming retail locations in Labrador, Newfoundland and Saskatchewan.
Canopy Growth may rank as the largest marijuana stock per market cap, but, it also surprisingly ranks among the industry’s best bargains in light of its cost for each kilogram of marijuana produced. Canopy also claims an edge over most cannabis companies with its partnership with Constellation Brands, a large beer and liquor maker, which allows Canopy Growth to access resources otherwise unavailable to a marijuana stock company.
2. Aurora Cannabis has aggressively prepared for Canada’s legal recreational cannabis market.
No marijuana producer in the country has taken a more aggressive approach to capacity expansion than Aurora Cannabis. In the past few months, the company completed two high profile acquisitions – MedReleaf (TSE:LEAF), Canada’s third largest grower, and CanniMed Therapeutics (CMED.TO).
Aurora has been subject to criticism due to its strategy of rapidly acquiring partnering players; the company’s CCO, however, has defended this approach by referring to the current situation in the industry as a “land grab,” of which Aurora has placed itself in the middle to best establish the brand among its competitors.
Adding in production capacity from the MedReleaf acquisition, Aurora is on track to produce more than 570,000 fully funded kilograms per year. Aurora has also been able to add capacity through agreements secured with several smaller growers.
On the retail front, Aurora’s preparations include purchasing a stake in Alcanna, in addition to a partnership, which will theoretically give the company access to Alcanna’s 229 liquor stores throughout Alberta. Other agreements were secured for distribution purposes with both of Canada’s top pharmacy chains, Shoppers Drug Mart and Pharmasave.
3. Among marijuana stocks to buy, Aphria is in a good position to compete in Canada’s recreational market.
Investors should not be fooled by the company’s current production capacity of roughly 35,000 annual kilograms; by the beginning of next year, Aphria should be on track to produce an annual 255,000 kilograms.
When it comes to formulating a solid retail strategy, Aphria has secured this through a key distribution-related partnership with Southern Glazer. The wine and spirits distributor, the largest in North America with operations throughout each of Canada’s provinces, was chosen in May as Aphria’s exclusive partner for distributing recreational marijuana.
Aphria has a low cost business structure in its favor, capable of producing each gram of marijuana for less than CA$1. According to the company’s CEO, Vic Neufield, Aphria’s low-cost operations should be significantly beneficial by the end of 2019, when supply is expected to catch up with Canada’s recreational demand.
Investors who are concerned these cannabis stocks are too expensive might want to take a closer look.
With market caps at almost $7 billion, $4.3 billion and $2 billion, respectively, Canopy Growth, Aurora Cannabis and Aphria may seem overly expensive. However, this is not necessarily the case.
Canada estimates its recreational market will be around CA$7 billion annually. The total size of Canada’s marijuana market, adding in the MMJ market, will likely be greater than CA$8 billion. This, alone, is not great enough to support the large market caps of each of these major marijuana stocks; however, the opportunity in global markets is more than enough.
There are currently 22 countries, plus Canada, with medical marijuana legalized in some form. The demand for medical cannabis globally could potentially expand eight times beyond that of Canada’s market. This does not account for other countries and U.S. states likely to legalize marijuana, let alone the potential changes in U.S. federal law.
In truth, there’s no saying how long it may take to see this kind of development among global markets, and, if it takes too much time, even major players are likely to suffer. However, a longer-range view ought to see Canopy Growth, Aurora Cannabis and Aphria prospering, especially with as the restrictions on marijuana continue to loosen.
(For other recommendations for marijuana stock deals, read Want a Cheaper Pot Brownie? Three Inexpensive Cannabis Stocks to Buy.)