Aphria has the most profitable growing operation in Canada and the lowest cost of production, but still trades at a big discount to peers Aurora Cannabis and Canopy Growth.
We think Aphria’s management quality is second to none and will lead to stock outperformance once the recreational market is fully operational in 2019.
Growing Costs Per Gram
Germany quietly reopened the bidding process for a growing license and volumes demanded from the government haven’t changed even though demand is exploding.
The government is showing they want to move slow and imports will continue to be the main source of supply for German patients. This is a very positive development for Canada’s growers.
After rumours swirled for months that Molson was looking to enter the cannabis space, they ended up forming a joint venture with Hydropothecary (TSX: HEXO), disappointing some investors who thought that Aphria was the front-runner for a Molson tie up.
Molson will have control over the JV without a cash investment and was granted warrants for 6% of HEXO, leading us to question what value HEXO is receiving besides access to Molson’s considerable distribution platform.
Attorney General Jody Wilson-Raybould decided that the Draeger DrugTest 5000 will be the device used across the nation to sniff out cannabis impaired drivers.
The company that produces the device is Dragerwerk A.G. & Co., a German company. Drager only generated 4% of cashflow from North America in 2017 so the sales from this new device are unlikely to make this company a compelling investment as a play on the growing cannabis industry.
Scientist from Queen Mary University in London found that mice suffering from pancreatic cancer and a combination of CBD and chemotherapy drugs lives for 56 more days, compared to only 23 days with chemotherapy drugs alone.
Human Clinical trials could start shortly adding yet another data point supporting the clinical use of CBD.
Italian Health Minister Gulia Grillo posted on Facebook Tuesday that the government will move to either approve private cultivation or a public-private partnership structure to make sure citizens will have access to enough supply of cannabis.
The population in Italy is 70% larger than Canada and domestic supply is almost nonexistent, introducing a significant opportunity for Canadian licensed producers.
Marijuana stocks were basically flat for the week but an interesting rotation took place with large cap stocks under performing small cap for the week which rarely happens.
The underpeformance was likely driven by a rotation out of Aphria and into Hydropothecary as investors showed their disappointment that Molson did not choose Aphria as an infused beverage partner.
Even with all of the positive momentum on legalization, the stocks are down 10% since the recent bottom in April. Retail investors are still waiting for a rebound in stocks leading up to legalization which could happen for a few weeks just before the October 17 legalization date with some follow through into the end of the year due to a shortage of product, but it’s looking like this is going to be a long summer of lacklustre performance.
READ THE MARIJUANA EXPORT MIRAGE FOR AN IN-DEPTH REPORT ON THE STATE OF DEMAND FOR MEDICAL MARIJUANA OUTSIDE OF CANADA
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