The Canadian cannabis stocks on our list, which includes Aurora Cannabis (TSX:ACB), are set to have their retail investments negatively impacted by new regulations introduced by the Ontario government
SmallCapPower | November 20, 2018: As it currently stands, consumers looking to purchase legal marijuana in Ontario are limited to the online Ontario Cannabis Store. However, that is set to change in April once store locations are permitted to sell cannabis-based products. Applications for retail licenses will open on December 17. Some licensed cannabis producers (LPs) focused on vertical integration have made preemptive investments in retail networks to gain a first mover advantage. Unfortunately, on November 14, new retail regulations brought some bad news: the Ontario government announced that retail licenses will not be issued to corporations if more than 9.9% of its ownership is controlled by one or more licensed marijuana producers or their affiliates. Today, we have weeded out two Canadian cannabis stocks whose retail investments will be most significantly impacted by Ontario’s newest regulations. Canopy Growth Corp. (TSX:WEED) and Aurora Cannabis Inc. (TSX:ACB) have previously made significant investments into companies with diverse retail assets but unless regulations change will be limited to one retail outlet each.
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Note: All metrics are as of closing prices on November 15, 2018.
Aurora Cannabis Inc. (TSX:ACB) – $8.42
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., 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. Additionally, the Company has signed a supplier agreement with the Province of Québec to supply cannabis for the province’s adult consumer market. In February, Aurora made a $135M investment to purchase a 25% stake in Alcanna Inc. (TSX:CLIQ), the biggest private liquor retailer in Canada. With over 229 locations, Aurora had planned to leverage the success of Alcanna to open cannabis retail locations under the “Aurora” name across the country.
- Market Cap: $8,444 Million
- 1-Month Total Return: -37.4%
- 1-Year Total Return: 62.0%
- Average Daily Volume (3 Month Average): 33.8 Million
Canopy Growth Corp. (TSX:WEED) – $46.44
Cannabis
Canopy Growth Corporation is the largest cannabis company listed by market cap on the TSX and NYSE. To position itself in the Canada’s recreational market, the Company has secured agreements with the Provinces of Quebec, Prince Edwards Island, New Brunswick, and Newfoundland & Labrador to supply their adult consumer market with high-quality cannabis. The Company has the largest licensed production platform in Canada, with over 600,000 sq. ft. of production space. In July, Canopy acquired Hiku Brands to diversify their brand portfolio and retail distribution. Hiku brands owns a network of retail locations in throughout Ontario, British Columbia and Alberta under the brand Tokyo Smoke. At the time of the transaction Canopy purchased Hiku for a 33% premium, paying $1.91 per outstanding share.
- Market Cap: $15,667 Million
- 1-Month Total Return: -22.3%
- 1-Year Total Return: 169.1%
- Average Daily Volume (3 Month Average): 7.10 Million
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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