The Canadian marijuana stocks we’ve discovered spent heavily on marketing last quarter and were top performers in terms of balancing advertising spend and total revenue
SmallCapPower | November 21, 2018: October 17, 2018 was a significant day not just for cannabis legalization but also for cannabis advertising. New laws were introduced banning companies from partaking in advertisements, sponsorships, endorsements and promotions that associated cannabis with an attractive lifestyle. However, many analysts noted an increased expense on selling and marketing in the most recently quarterly reports within the cannabis sector with Canopy Growth Corp (TSX:WEED) leading the way. In general, the expenses show the efforts of cannabis organizations trying to promote their brands to the public in the months leading up to Oct. 17, when advertising regulations were more laxed. Today, we have identified four Canadian marijuana stocks from last quarter that balanced marketing costs to total revenue. These companies expensed at least $4.5M on S&M last quarter, while achieving an average Total Revenue/S&M ratio of 1.74; dramatically overperforming both Canopy (0.3) and Aurora (0.5). Note: metrics reflect closing prices as at November 19, 2018.
Aphria Inc. (TSX:APHA) – $11.91
Aphria is Canada’s third-largest cannabis producer by licensed capacity. The Company’s Leamington greenhouse facility provides them with the opportunity to be a scalable, low-cost producer of medical marijuana. By January 2019, Aphria expects to increase its total licensed greenhouse growing space to 1,000,000 sq. ft., increasing its annual production capacity from 9,000 kilograms to 100,000 kilograms. The Company currently has 44,000 sq. ft. of production space. On November 2, 2018, Aphria shares began trading on the New York Stock Exchange (NYSE) under the ticker symbol “APHA,” allowing the Company to access U.S.-based investors on the largest equity exchange in the world.
- Market Cap: $2,974 Million
- 3-Month Total Return: 12.6%
- Selling and Marketing Expenses (Last Quarter): $4.7 Million
- Total Revenue (Last Quarter): $13.3 Million
- Total Revenue/S&M Expense Ratio: 2.8
CannTrust Holdings Inc. (TSX:TRST) – $7.96
CannTrust is a Canada-based licensed producer of medical cannabis. The Company’s original 60,000 square foot production facility, located in Vaughan, Ontario, uses hydroponic technology to produce at 3,600 kg annually. CannTrust has also set aside a 46-acre property in Niagara, where it intends to build a 450,000 sq. ft. facility to increase growing capacity with an anticipated completion date in 2019. In October, the Company announced a strategic partnership with Cannatrek Ltd, an Australian licensed cannabis producer, to expand the Company’s global reach to the Australian and Asian markets. CannaTrust will invest C$6M for 19.8% ownership of Cannatrek. On November 14, 2018, the Company announced a record revenue for Q3/2018 as revenues grew 105% yr/yr.
- Market Cap: $838.8 Million
- 3-Month Total Return: 1.02%
- Selling and Marketing Expenses (Last Quarter): $4.31 Million
- Total Revenue (Last Quarter): $12.6 Million
- Total Revenue/S&M Expense Ratio: 2.9
MedMen Enterprises Inc. (CSE:MMEN) – $5.43
MedMen Enterprises is a vertically-integrated cannabis company focused on the U.S. market. The Company has 18 facilities that manufacture and distribute their cannabis product in California, Nevada and New York. On June 6, the Company completed an acquisition of Treadwell Simpson Partnership and its affiliate. Through this transaction, MedMen gained access to Treadwell Nursery’s cultivation facility in Florida and has the license to open 25 additional medical dispensaries in Florida. On October 19, MedMen announced its intent to acquire PharmaCann for US$682 million, which drove the recent upswing in the stock. Once closed, the acquisition effectively positions MedMen in 12 states, including New York, Illinois, and Pennsylvania. The Company has been aggressively expanding, having recently agreed to acquire additional vertically-integrated operations in Arizona for US$33 million in cash and stock, as well as raising $120 million in equity financing.
- Market Cap: $2.1 Billion
- 3-Month Total Return: 20.7%
- Selling and Marketing Expenses (Last Quarter): $9.23 Million
- Total Revenue (Last Quarter): $38.4 Million
- Total Revenue/S&M Expense Ratio: 4.2
Organigram Holdings Inc. (TSXV:OGI) – $5.39
Organigram is a Canada-based marijuana producer operating in New Brunswick. The Company currently produces 22,000 kg/year out of its 134,000 sq. ft. facility. OGI plans to expand this facility, increasing production to 65,500 kg by April 2019 and 113,000 kg by April 2020. The Company has signed Memorandums of Understanding with New Brunswick for the supply of 5M grams in 2018 and Prince Edward Island for the supply $8M-$12M worth of cannabis to the recreational market. On November 12, 2018, the Company announced a strategic partnership with the Government of Canada, Genome Atlantic and the New Brunswick Innovation Foundation to create a research project focused on cannabis innovation at the University of Moncton. The research will specialize in genetics and will identify new growing techniques that will improve productivity, lower costs, and provide healthier and more resistant plants.
- Market Cap: $697.6 Million
- 3-Month Total Return: 6.73%
- Selling and Marketing Expenses (Last Quarter): $4.82 Million
- Total Revenue (Last Quarter): $3.73 Million
- Total Revenue/S&M Expense Ratio: 0.8
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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