Cannabis stocks have become a hot commodity recently and many companies are looking to take advantage of this boom through a flurry of public listings. The problem for retail investors is determining which marijuana stocks make good investments. As with any high growth industry, the companies you see listed on the Canadian exchanges will not all be there in 5 years. Some will go under. There will most likely be acquisitions, and consolidation in the space leaving others to be industry leaders. As of today, there are approximately 25 TMX-listed companies that are directly involved in the cannabis industry. Of note, the TMX group operates both the TSX and TSX-Venture exchanges. Before we get into the top marijuana stocks in Canada, let’s go over some things that make the industry so promising.

Why marijuana stocks?

The pot rush can be explained in one word: legalization. Governments across the world are introducing legislation to legalize the recreational use of marijuana. In Canada, one of the key platforms that the current Liberal government ran on was the legalization of marijuana. On April 20, 2016, also known as 420-day for pot enthusiasts, the Government of Canada officially announced plans to legalize marijuana. Despite opposition, the current plan is for legalization to take effect on July 1, 2018. There are more than 4 million users of marijuana in Canada. 10% of these users will develop a dependency.

How many people use marijuana?

In 2016, Deloitte published a report that indicated at least 22% of adult Canadians use marijuana at least sometimes and about 17% are willing to try. Based on these numbers, they estimate that the recreational market can be valued as high as $8.7 billion. To satisfy this demand, the Parliamentary Budget Officer estimates that 650,000kg of recreational cannabis will be needed to satisfy yearly demand. It is estimated that the combined production of the 45 current medical marijuana growers in Canada is approximately 80,000kg. In addition, they have the capital to expand that production to about 500,000kg. This potential for explosive demand is what is driving investors into marijuana stocks.

What to look for?

Along with marijuana legalization comes regulation and companies will need to adhere to strict rules regarding their production and distribution of marijuana. Although legalization is only months away, the exchanges and government are only now starting to publicize their plans on how to roll out recreational marijuana use. For starters, it is important for investors to understand that the federal government has de-centralized many of the decisions to the provinces. As such, each provincial government will be implementing their specific distribution plans. As we have already seen, these may vary wildly.

Here is what we know so far:

Ontario: Recreational marijuana sales will closely resemble that of their liquor system. Marijuana will only be sold at some 150 LCBO locations across the province, be limited to adults aged 19+ and consumption will only be allowed in private residences. No announcement has been made with respect to where they will source the product.

New Brunswick: Much like Ontario, New Brunswick will regulate the distribution of marijuana through a newly formed Crown Corporation. Another entity, yet to be announced, will handle retail operations. Of note, the company also announced an agreement with two suppliers, Organigram and Canopy Growth.

It will be important for investors to stay on top of ongoing provincial announcements as supplier agreements have the potential to significantly impact a stock’s price. Provincial agreements lead to a certain level of legitimization for companies. It gives them some instant credibility and provides them with legal access to the recreational market.

Medicinal marijuana producers may become recreational suppliers

Speaking of legitimacy, a number of provinces have existing licensing agreements with marijuana companies to produce or sell marijuana for medical purposes. Each of those companies have already passed the strict guidelines and must adhere to the Controlled Drugs and Substances Act. Investors can use this publicly available information to help provide an educated guess as to which growers are better positioned to be suppliers for recreational use. As an example, Organigram is the sole company licensed for the cultivation, production, and sale of marijuana for medicinal purposes in New Brunswick. Therefore, it was not surprising to see them named as a supplier for recreational use. Investors can do their own due diligence in this area by visiting Health Canada’s licensed producer’s page.

Finally, as with any investment, a company’s financial position is of the utmost importance. One of the most important aspects will be scalability of operations. The industry is in full growth mode. Organizations will need access to capital in order to expand operations and meet demand. One must not only understand the company’s growth profile. Instead, they must also determine its feasibility and likelihood of meeting targets in what is shaping up to be an extremely competitive space.

So where should you start? Here are the top 5 marijuana stocks in Canada

#5. OrganiGram

Top Cannabis Stocks OrganiGram

Price As Of Nov 1 2017: $2.97
Ticker: OGI.TO
Sector: Health
P/E: Negative
EPS: $-.08
Market Cap: $310.8 Million
Net Revenue 2016: $6.1 Million
Net Profit 2016: $0.8 Million
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Admittedly, outside of the big three marijuana stocks, it is difficult to predict which other companies will have long-term staying power. The reason for making Organigram’s inclusion on our list of the top marijuana stocks over the others is simple, the aforementioned deal with the province of New Brunswick. The 2-year deal to supply cannabis to the recreational market in the province adds further growth potential to their current medical license.

On top of supplying dried cannabis and oil products, through their exclusive agreement with TGS Colorado, the company is well positioned to take advantage of recreational edible products, which have rapid growth potential. Likewise, much like everyone on the list, the company is growing production capacity and is expected to reach 220,000 sq. feet of production capacity post build-out. The company currently produces 5,200kg and expects to more than double production to 16,000kg by next year.

#4. Supreme Pharmaceuticals

top marijuana stocks Supreme
Price As Of Nov 1 2017: $1.36
Ticker: FIRE.TO
Sector: Health
P/E: Negative
EPS: $-.14
Market Cap: $264.3 Million
Net Revenue 2016: : N/A
Net Loss 2016: $4.8 Million
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The fourth best stock on our list of top cannabis stocks is Supreme Pharmaceuticals. Supreme Pharmaceuticals is primarily a producer supplying cannabis to legal retailers in Canada. Unlike the others listed here, the company is focused on business-to-business sales through the wholesale market. The company has a unique Hybrid Greenhouse facility (7ACRES) spanning 342,000 sq. feet with a current flowering capacity of 10,000 sq. feet. The facility is an ACMPR licensed cannabis producer and recently received a Health Canada license extension through 2020.

Although the company has yet to generate any revenues as per recent filings, in September, the company entered into two significant supply agreements with Aurora Cannabis and Emerald health. The uniqueness of Supreme’s wholesale model is attractive and the two aforementioned agreements are just the beginning for the company. On the back of these announcements, on October 4th the company announced it was quadrupling their flowering footprint at 7ACRES to 40,000 sq. feet. Circling back to lack of revenues, the company announced in early October that 7ACRES posted their first sales which exceeded 1.5 million in the month of September. These sales will be recorded in their next quarterly filings.

#3. Aphria Inc

top marijuana stocks Aphria

Price As Of Nov 1 2017: $7.80
Ticker: APH.TO
Sector: Health
P/E: 57.628
EPS: $0.14
Market Cap: $1.08 Billion
Net Revenue 2016: $20 Million
Net Profit 2016: $4.2 Million
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Aphria Inc. rounds up the ‘big 3’ top cannabis stocks on the Toronto exchanges. Unlike the other two aforementioned companies, Aphria has actually been profitable over the past two years, which is a rarity in this space. They consider themselves to be a low-cost producer and as per their latest quarter, increased revenues 38% YOY.

Aphria is also investing heavily in expansion and the company expects to grow annual production capacity from the current 9,000kg to 30,0000kg in the next year and to 100,000kg within the next 15 months. One risk for Aphria is their current operations in certain US states where marijuana is still illegal. This is important because the TSX recently announced that it may move to delist stocks of marijuana companies who operate in these states. Although listing on other Canadian stock exchanges is possible, delisting could have a negative effect on any stock and its liquidity.

#2. Aurora Cannabis Corporation

Top Pot Stocks Aurora Cannabis Corporation

Price As Of Nov 1 2017: $3.06
Ticker: ACB.TO
Sector: Health
P/E: Negative
EPS: $-0.05
Market Cap: $1.08 Billion
Net Revenue 2016: $18 Million
Net Profit 2016: $13 Million
Click here to see their chart and opinions

The runner-up on our top marijuana stocks in Canada is Aurora. Aurora, with a market cap of $1.08 billion, is also a well-known player in Canada’s medical marijuana industry. Through its many subsidiaries, Aurora has only recently entered the high growth cannabis oils market and the company expects sales to account for approximately 26% of revenues. They grew revenue by a whopping 16.5x year-over-year from 1.4 million in 2016 to 18 million in 2017.

Aurora is estimated to own approximately 13% of Canada’s medical marijuana market which positions them well for further provincial recreational agreements much like it has for Organigram in New Brunswick. Like Canopy, their growth profile is not limited to Canada as they have entered both the Australian and German markets. The company is also scaling at a high rate and plans to open one of the most technologically advanced facilities estimated to produce 100,000kg of cannabis yearly.

#1. Canopy Growth Corporation

Top Marijuana Stocks Canopy Growth Corp

Price As Of Nov 1 2017: $16.49
Ticker: WEED.TO
Sector: Health
P/E: Negative
EPS: $-.10
Market Cap: $2.83 Billion
Net Revenue 2016: $40 Million
Net Profit 2016: $17 Million
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The best of the best in terms of marijuana stocks in Canada is Canopy Growth, formerly Tweed Marjuana Inc. Canopy growth is in fact so promising that it cracked our top growth stocks in Canada for 2017. Canopy Growth is the largest company in the industry with a market capitalization of $2.83 billion. They are actively involved in Canada through their subsidiaries including Tweed, Bedrocan, and Tweed Farms, producing and distributing marijuana for medicinal purposes. The company produces approximately 3,540 kilograms of medical marijuana a year to supply its 58,000 medical customers. The company is growing exponentially from sales of $2.4 million in 2015 to $40 million in 2017.

Canopy’s growth profile is not limited to Canada as it has significant international operations. In the last two months alone, they entered into various supply and distribution agreements with the Jamaican, Spanish, and Denmark governments. These agreements add to their sector-leading expansion in Australia, Germany, Brazil, and Chile. Furthermore, the company is scaling at an impressive pace having recently announced two very large expansions to existing facilities. Canopy is currently the best-of-breed and is well positioned to take advantage of explosive demand. If you are looking for a cannabis stock to invest in, Canopy Growth Corporation is pretty much a no-brainer.

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