Canadian Marijuana Stocks Facing Big Supply Issues

The five Canadian marijuana stocks we have uncovered have significant gains in biological value

SmallCapPower | July 16, 2018: Marijuana stocks report gains and losses on the fair value of their biological assets as an IFRS measure. Biological assets, in this case are the marijuana plants, which grow in value over time and are measured at their fair sale value. Given that the biological assets are accounted as profits before they are sold, the profits may be exaggerated. Currently, the Canadian marijuana stocks we have identified today have 3-4x the gross profit margin when accounting for the sale value of the biological assets, indicating a great deal of product growth. At the moment, the production growth is not being met by the current supply contracts.

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Hydropothecary Corp. (TSX:HEXO) – $4.89
Pharmaceuticals

Hydropothecary is a Canadian cannabis producer, operating a 50,000 sq. ft. grow facility in Quebec. The Company differentiates itself through its commitment to natural growth techniques and a focus on customer service. Current operations produce 3,600 kg of cannabis per year. In October 2017, construction began on a new 250,000 sq. ft. facility, anticipated to be operational by summer 2018. A second greenhouse construction project is expected to add an additional 1M sq. ft., scheduled to be completed by December 2018. With both new greenhouses operational, the Company expects to be able produce 108,000 kg of cannabis per year. The Company has a supply agreement with Quebec for the supply of 20M grams in 2018, and a total of 200M over the next five years. On July 11, the Company announced a supply agreement with BC Liquor.

  • Market Cap: $936.7M
  • Gross Profit Margin Before Fair Value Changes: 61.3%
  • Gross Profit Margin After Fair Value Changes: 214.9%
  • 1 Month Total Return: -3.0%
  • 3 Month Total Return: 21.6%

CannTrust Holdings Inc. (TSX:TRST) – $7.74
Pharmaceuticals

CannTrust is a Canada-based licensed producer of medical cannabis. The Company’s products are sold online and delivered to registered patients. CannTrust’s original 60,000 square foot production facility located in Vaughan, Ontario uses hydroponic technology to produce at a rate of 3,600 kg annually. CannTrust has also set aside a 46-acre property, where it intends to build a 450,000 sq. ft. facility to increase growing capacity with an anticipated completion date in mid-2018. On July 11, the Company and Gold Coast University Hospital in Australia partnered for an ALS clinical trial.

  • Market Cap: $817.0M
  • Gross Profit Margin Before Fair Value Changes: 61.9%
  • Gross Profit Margin After Fair Value Changes: 286.8%
  • 1 Month Total Return: -10.4%
  • 3 Month Total Return: 19.6%

Organigram Holdings Inc. (TSXV:OGI) – $5.06
Pharmaceuticals

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 (MOU) with New Brunswick for the supply of 5M grams in 2018 and Prince Edward Island for the supply of $8M-$12M worth of cannabis for the recreational market. In July, the Company announced supply agreements with Alberta, Manitoba, and Hiku Brands (CSE:HIKU).

  • Market Cap: $628.4M
  • Gross Profit Margin Before Fair Value Changes: 66.4%
  • Gross Profit Margin After Fair Value Changes: 202.6%
  • 1 Month Total Return: -12.0%
  • 3 Month Total Return: 42.9%

Supreme Cannabis Company Inc. (TSXV:FIRE) – $1.64
Pharmaceuticals

Supreme Cannabis is a Canada-based licensed producer of medical marijuana. The Company’s primary asset is 7ACRES, which currently operates a 40,000 sq. ft. facility that produces 5,000 kg per year. The Company is also developing a 342,000 sq. ft. facility at 7ACRES that anticipates 50,000 kg of annual production. Presently, the Company has supply agreements with the Manitoba and CannMart Inc. for a total of 2.7M grams in 2018. On July 11, the Company announced a supply agreement with BC Liquor and approval from Health Canada approval for an additional 30,000 sq. ft. of production.

  • Market Cap: $419.5M
  • Gross Profit Margin Before Fair Value Changes: 19.7%
  • Gross Profit Margin After Fair Value Changes: 86.3%
  • 1 Month Total Return: -5.7%
  • 3 Month Total Return: 5.8%

ICC Labs Inc. (TSXV:ICC) – $1.50
Pharmaceuticals

ICC Labs is a producer of recreational and medical cannabis operating in Uruguay and Colombia. The Company operates ~90,000 sq. ft. of indoor production and 66 acres of outdoor hemp production, at higher CBD to THC ratios than Canadian producers. The Company sells dried cannabis and cannabinoid oil products. ICC plans to dramatically expand production, adding an additional ~400,000kg/year of dried cannabis production and 250 acres of hemp production.

  • Market Cap: $206.4M
  • Gross Profit Margin Before Fair Value Changes: -328.6%
  • Gross Profit Margin After Fair Value Changes: 8640.4%
  • 1 Month Total Return: 8.7%
  • 3 Month Total Return: 28.2%

Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.

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