The Canadian cannabis stocks we’ve weeded out offer some of the best margins in the industry
SmallCapPower | October 19, 2018: Recreational marijuana consumption was legalized in Canada this week and the whole industry will be paying close attention to the next one to two quarters of financial results. While production capacity will be important to allow companies to keep up with the demand of the Canadian market, having a strong gross margin should be of equal importance for the future profitability of Canada’s cannabis Licensed Producers (LP). Having a low cost of production per gram will be important in keeping margins high. Today, we have identified four ‘smaller’ Canadian cannabis stocks that have a cost of production less than $3.00/gram.
The Flowr Corporation (TSXV:FLWR) – $5.10
The Flowr Corporation operates a 16,000 sq. ft. indoor production facility in Kelowna, British Columbia, capable of producing an annual capacity of 3,100 kg. The facility is customized for a “enhanced sea-of-green” growing style utilizing equal-sized plants to target maximum yields and produce the highest quality products. An expansion project on the Kelowna facility is currently under progress with a projected production capacity of 61,750 kg in 2021.
- Market Cap: $400.1 Million
- 1-Month Total Return: -17.2%
- Average Daily Volume (1 Month Average): 0.06 Million
- Cost of Production/Gram: $2.05
CannTrust Holdings Inc. (TSX:TRST) – $13.67
CannTrust operates a 60,000 square foot production facility located in Vaughan, Ontario and utilizes hydroponic technology to produce at 3,600 kg annually. CannTrust has also developed a 450,000 sq. ft. indoor cultivation facility located in Niagara, Ontario. Combined, the Company’s projected production capacity for 2019 is 100,000 kg. On October 18, 2018, CannTrust announced an exclusive partnership with Kindred, a subsidiary of Breakthru Beverage Group. Kindred is expected to use their sales technology to build a state-of-the-art platform for CannTrust to penetrate the adult-use cannabis market.
- Market Cap: $1,424.5 Million
- 1-Month Total Return: 20.3%
- Average Daily Volume (1 Month Average): 4.20 Million
- Cost of Production/Gram: $2.79
Cronos Group Inc. (TSX:CRON) – $13.94
Cronos Group owns and operates two licensed producers of medical marijuana in Canada: Peace Naturals (medical) and In the Zone (recreational). The domestic capacity is expected to reach over 40,000 kg prior to the end of 2019. Internationally, the Company has formed a 50/50 joint venture with Agroidea SAS (AGI), Colombia’s leading agricultural service provider. The partnership permits Cronos to develop, cultivate, and manufacture cannabis at a custom-built, 207-acre facility, in Cundinamarca, Colombia.
- Market Cap: $2.5 Billion
- 1-Month Total Return: 14%
- Average Daily Volume (1 Month Average): 1.63 Million
- Cost of Production/Gram: $2.91
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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