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Should You Buy the Dip at Aphria Inc. or Aurora Cannabis Inc.?

Marijuana stocks on the TSX are facing pressure as industry leader TMX GROUP LIMITED has committed to conducting a regulatory review of the legal consequences of Canadian marijuana companies with U.S. assets. One of the companies facing this conundrum is Aphria Inc. (TSX:APH), which owns assets in the United States. The CEO of TMX, Lou Eccleston, has said that no new policy is forthcoming on the TSX as the listings policies were clear enough, but the hand wringing will likely continue until the review is completed.

Aphria stock spiked after financial results released in July showed major improvement in production costs. The share price has since plummeted 6.1% month over month as of close on August 22. Beyond concerns over the response from U.S. regulators, investors also have to worry about anxiousness coming from the provinces regarding recreational marijuana legalization in 2018.

On August 9, the company announced a global strategic partnership with the Canadian cannabis business Nuuvera Corp. Aphria will invest $2 million in a Nuuvera common share offering and enter a supply agreement which will culminate in an annual requirement of 17,000 kgs after the completion of its expansion plan in 2018. The agreement will also allow Aphria to access markets in South America and Europe, including the large and lucrative German market.

Aphria CEO Vic Neufeld expressed optimism after receiving confirmation from TMX that there would be no CDS ban on marijuana companies with activities in the United States. The chief concern will be the response of U.S. regulators. The head of the Department of Justice, Attorney General Jeff Sessions, is openly hostile to marijuana legalization, which should complicate the cross-border relationship in the future.

Since debuting on the S&P/TSX Index on July 24, Aurora Cannabis Inc. (TSX:ACB) stock has fallen 11.3% as of August 22. Executive vice-president Cam Battley predicted in July that Canadian producers will be unable to meet consumer market demand early on. He urged other companies to ramp up production capacity in order to prepare for the summer 2018 deadline. The company is working on the construction of what it claims will be the world’s largest cannabis production facility in Edmonton — what it calls “Aurora Sky.”

On July 31, the company announced a strategic investment in 19.9% of Hempco Foods and Fiber Inc. Aurora has also made acquisitions in Germany and Australia, and as of March 2017 it possessed over $110 million in cash. The company also revealed that it was expanding its leadership team.

Both companies have the potential to provide monster returns for investors heading into recreational legalization — Aurora, with its production ambitions and current capacity, and Aphria, with its strong financials and top-flight leadership that has been making fantastic deals. These are both strong long-term buys, but as we head into the fall of 2017, I like Aurora Cannabis.

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Fool contributor Ambrose O'Callaghan has no position in the companies mentioned.

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