After a promise made by Canada’s Liberal government, the everyday use of marijuana is slated to become legal before Canada Day 2018. Since the government wants to avoid a Canada Day frenzy, there is the opportunity for the recreational marijuana market to open prior to the national holiday to ensure a gradual introduction of the product to many Canadians who have never tried marijuana.
Since this major event for consumers and investors alike is now less than one year away, it is imperative to be properly positioned for the opening of this market. Although investors should expect an increase in competition in the everyday marijuana industry over the years that will follow, the best bet for investors who believe in the long-term prospects of this industry is to go with an established producer.
Established medical marijuana producers have a limited track record of growing, storing, and distributing the product on a small scale. With the expectation of a changing distribution channel in the coming year, investors may want to deploy their money in a way that minimizes risk. As a new and growing industry, there are still many success stories to be written, but there will be many failures along the way.
Here are the companies currently leading the industry.
The biggest marijuana company by market capitalization, Canopy Growth Corp. (TSX:WEED), currently trades at $8 per share. Although the growth was not organic, company management has been shrewd in consolidating the industry. This leads to economies of scale and an increase in pricing power. Although the company has operated on a negative cash flow basis for a matter of years, investors will hopefully see this change in the coming year. Given the new clientele and distribution, Canopy may be in the best possible position to cut expenses and deliver a profit to shareholders.
The second major player in the industry is Aurora Cannabis Inc. (TSXV:ACB), which trades near $2.15 per share. The company, which is located in western Canada, has also reported negative cash flows for many years while acquiring new customers along the way. Clearly, repeat business is a very important metric to each competitor. With an increase in capacity, the company may be in prime position to create economies of scale while continuing to produce a high-quality product.
The latest horse to join the race is MedReleaf Corp. (TSX:LEAF). At a price near $8.50 per share, it may or may not be a bargain. The company, which came to market in June, has only reported quarterly earnings on one occasion as a public company. Over time, investors will gain clarity about the company’s operations and will be better able to form an opinion.
Investors still have many months before deciding which company to pick. The good news, however, is that there may be more than one winner in this category.
