The Canadian cannabis stocks we’ve weeded out today have locked in notable supply agreements
SmallCapPower | November 23, 2018: Recent reports indicate that several locations in Canada suffer from a shortage of cannabis supply in the aftermath of federal recreational legalization on October 17, 2018. As massive amounts of production capacity from some of the industry’s largest players come online in the coming years, the industry may suffer from a supply surplus relative to demand. In this scenario, companies with supply agreements that lock in certain quantities and prices will have a competitive advantage, providing predictable and stable cash flows. As such, we’ve reviewed the landscape and found three Canadian cannabis stocks with notable supply agreements.
*Market Cap and share prices as of November 21, 2018.
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HEXO Corp. (TSX:HEXO) – $5.90
Cannabis
HEXO is one of the lowest-cost cannabis producers and is boosting its production capacity to support the growing demand for cannabis products. The Company currently operates a 310,000 sq. ft. production facility and is in the process of developing a 1.0 million sq. ft. greenhouse on its Gatineau property, which will be completed by the end of 2018. Total production for both the facilities will amount to 108,000 kilograms of dried flower on an annual basis. On October 4, 2018, HEXO announced the closing of a joint venture transaction with Molson Coors Canada (NYSE:TAP) to identify opportunities in the cannabis-infused beverages market. The Company’s five-year preferred supply agreement with the Société des alcools du Québec could generate over $1 billion in revenues over the course of the agreement.
- Market Cap: $1.2 Billion
- 1 Month Returns: +1.4%
- YTD Returns: +32.0%
Aurora Cannabis Inc. (TSX:ACB) – $8.25
Cannabis
Aurora Cannabis is a licensed producer and distributor of medical cannabis. ACB expects to have just under 1,000,000 sq. ft. of licensed production space and plans to produce at least 270,000 kilograms of cannabis annually. The Company also has 20% ownership interest in Liquor Stores N.A. (TSX:CLIQ), the dominant alcohol retail chain in Western Canada. It intends to convert several existing outlets, as well as develop new stores, for the sale of cannabis to the recreational market. Aurora has also embarked on an aggressive international expansion strategy that aims to have operations or sales in foreign markets such as Germany, Denmark, Italy and Australia. The Company has entered into supply agreements with Shoppers Drug Mart as well as with 12 provinces and territories that collectively make up 98% of the Canadian population.
- Market Cap: $8.0 Billion
- 1 Month Returns: -27.8%
- YTD Returns: -30.2%
Tilray Inc. (NASDAQ:TLRY) – US$109.31
Cannabis
Tilray is a company focused on medical cannabis research, cultivation, and distribution. The Company operates internationally through its subsidiaries in Australia, Canada, and Germany. Tilray’s stock price climbed after it announced on September 13 that it had obtained regulatory approval to export flower-based products to Germany. This supplements the oil-based products Tilray already exports to Germany. The stock has experienced high levels of volatility amidst significant short-selling pressure from notable research firms, including Citron Research. The Company maintains supply agreements with distributors in Argentina, Australia, Chile, Croatia, Cyprus, the Czech Republic, New Zealand and South Africa. Closer to home, Tilray has supply agreements with several Canadian provinces, including the Ontario Cannabis Store.
- Market Cap: $10.2 Billion
- 1 Month Returns: -10.8%
- YTD Returns: +388.2%
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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