The Canadian cannabis stocks on our list have noteworthy inventory positions going into the first full year of recreational legalization
SmallCapPower | March 19, 2019: Inventory turnover is a measure of how efficiently a Company can control its inventory. High turnover is seen as positive by investors as the company does not have much of its working capital tied up in stock. Canadian LPs need to pass a quality control tests by Health Canada, which requires a third-party lab to test the cannabis to ensure that it is free of contaminates, such as mold, mildew, chemicals, and pesticides before the cannabis can added to inventory. Typically, dried flower has a shelf life of one year, and extracts are longer. Today we have identified four Canadian cannabis stocks with significant inventory positions. This may be an indication that these companies have plenty of inventory to sell once retail stores begin their full rollout in Ontario and Quebec. However, this can also be an indication that LPs are not turning over their inventory fast enough, which could lead to potential write-downs.
*Share prices as at March 15, 2019, data obtained from S&P Capital IQ
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HEXO Corp. (TSX:HEXO) – $8.10
Cannabis
HEXO produces, markets, and sells cannabis products in Canada. The Company is one of the largest licensed cannabis companies in Canada, operating over 1.3 million sq. ft. of facilities in Ontario, Quebec, and Greece, where it plans to establish a Eurozone processing, production, and distribution center. On December 13, the Company released its FQ1/19 results. The Company reported $6.7M in gross revenue and $5.6M in net revenues. On March 13, HEXO released FQ2/19 results and reported $16.2M in gross revenues and $13.4M in net revenues.
- Last Reported Quarter: January 31, 2019
- Dried Flower Inventory Value: $16.8 Million
- Cannabis Oils Inventory Value: $3.3 Million
- Average Selling Price Recreational: $5.83/gram
- Average Selling Price Medical: $9.15/gram
- YTM Return: 81.5%
- Market Cap: $1,704.5 Million
Aphria Inc. (TSX:APHA) – $12.82
Cannabis
Aphria is one of Canada’s largest cannabis producers by licensed capacity. The Company’s Leamington greenhouse facility allows them to be a scalable, low-cost producer of medical marijuana. Aphria sells medicinal cannabis and its derivatives through retail sales and wholesale channels. On March 5, Aphria announced it had received Health Canada approval of their Aphria ONE facility. With the Aphria ONE facility online the Company’s annual production capacity increase to 115,000 kg. This follows a news release on February 15, where the Company announced that its Board of Directors has accepted and considered the report of the special committee of independent directors, which reviewed the allegations made against it in respect to its previously-completed acquisition of LATAM Holdings Inc. The committee concluded that the acquisition was within an acceptable range as compared to similar acquisitions by competitors.
- Last Reported Quarter: November 30, 2018
- Dried Flower Inventory: $18.5 Million
- Cannabis Oils Inventory: $6.0 Million
- Average Selling Price Recreational: $6.32/gram
- Average Selling Price Medical: $8.99/gram
- YTM Return: 64.1%
- Market Cap: $3,208.9 Million
Organigram Holdings Inc. (TSXV:OGI) – $9.04
Cannabis
Organigram Holdings is a Canada-based company that produces and sells cannabis oil and dried cannabis through its subsidiaries. OGI has increased its production capacity to 36,000 kg/year and is anticipating a production increase to 113,000 kg/year by October 2019. As the leading company in the Atlantic provinces, OGI surpasses Canopy Growth Corp (TSX:WEED), Aphria Inc (TSX:APHA), and Aurora Cannabis (TSX:ACB), with a market share of 24% in Prince Edward Island and Nova Scotia. On January 29, the Company signed a multi-year extraction contract with Valens GroWorks Corp. (CSE:VGW), an extraction focused company. On February 26, OGI announced that it had signed a letter of intent (LOI) with the Société Québécoise du Cannabis (SQDC) to supply recreational cannabis in Quebec, making it one of three cannabis companies (WEED & APHA) to have supply deals in all 10 provinces.
- Last Reported Quarter: November 30, 2018
- Dried Flower Inventory: $78.0 Million
- Cannabis Oils Inventory: $13.0 Million
- Combined Average Selling Price: $7.17/gram*
- YTM Return: 88.6%
- Market Cap: $1,275.8 Million
*Calculated by taking Q1/19 net revenues of $12,439,000 and dividing by total grams sold of 1,735,547
Aurora Cannabis Inc. (TSX:ACB) – $12.83
Cannabis
Aurora Cannabis is a licensed distributor and producer of medical marijuana. The Company expects to have approximately 1,000,000 sq. ft. of licensed production space and produce 270,000 kg of cannabis annually. Aurora intends to convert several existing outlets, as well as develop new stores, for the sale of cannabis to the recreational market. The Company has signed supply agreements with 12 provinces and territories, making up over 98% of the Canadian population. On February 11, the Company announced its Q2/19 financial results. Aurora reported revenues of $54.2M, an 83% increase from the previous quarter. On March 13, 2019, ACB announced that it had appointed Nelson Peltz as a strategic advisor. Mr. Peltz currently serves on the board of CPG companies such as Proctor and Gamble and The Wendy’s Company and is expected to help guide Aurora with strategic opportunities in the CPG space.
- Last Reported Quarter: December 31, 2018
- Dried Flower Inventory: $48.8 Million
- Cannabis Oils Inventory: $4.3 Million
- Combined Average Selling Price: $6.23/gram
- YTM Return: 97.3%
- Market Cap: $12,987.3 Million
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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