As Shoppers Drug Mart Shops Around for Weed, What Should Cannabis Investors Do?

Tiray Canada Ltd. has just joined Aphria Inc. (TSX:APH) and MedReleaf Corp. (TSX:LEAF) as potential suppliers to Loblaw Companies Ltd.’s (TSX:L) subsidiary Shopper’s Drug Mart. What does this mean for cannabis investors?

| More on:

With the Canadian cannabis landscape constantly changing on what seems to be a daily basis, keeping up with the stream of news regarding acquisitions, partnerships, production agreements, financing arrangements, and regulations can be very hard to do.

This past week, Shoppers Drug Mart, a subsidiary of Loblaw Companies Ltd. (TSX:L), signed a medical cannabis supply agreement with Tilray Canada Ltd., a medical marijuana producer based in British Columbia. The deal is the third of its kind for the Canadian pharmacy chain, with Shoppers already signing supply deals with both Aphria Inc. (TSX:APH) and MedReleaf Corp. (TSX:LEAF) last month.

Aphria was the first company which was able to sign on with Shoppers, and as CEO Vic Neufeld pointed out, Aphria will be the “first and primary” supplier of medical marijuana for Shoppers, noting supply minimums and other contractual volume-related stipulations have been agreed to in order for Shoppers to maintain exclusivity with Aphria.

While the Tilray announcement was a little sparser on the details, it represented an interesting strategic move by Shoppers in that pharmacy chains across the country appear to be scrambling to sort out supply prior to legalization in the coming months. Since medical marijuana is currently legal, the timeline for Loblaw’s (Shopper’s) Health Canada permit to be approved remains uncertain, although industry experts are hoping for regulatory changes sometime before legalization.

Loblaw originally applied for an application to dispense medical marijuana in 2016 and remains optimistic that pharmacies will officially be able to dispense medical marijuana in accordance with the provincial regulations relating to how the green drug will be retailed.

Bottom line

The rise in the number of supply deals between pharmacies and cannabis producers should not come as a surprise to investors; it would be imprudent for pharmacies to fail to put a plan in place should their applications be approved to sell pot.

That said, the recent valuation increases many firms have seen of late relating to these deals may be overdone, considering the fact that provincial governments will be investing millions in building independent cannabis stores to regulate the distribution of marijuana and keep cannabis out of the hands of minors, resulting in potential pushback from government officials on private retail in provinces such as Ontario, Quebec, and B.C., which have very strict alcohol retail regulations currently. The fact also remains that the Health Canada permit has not yet been approved, meaning the cart may be coming before the horse.

Stay Foolish, my friends.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Chris MacDonald has no position in any stocks mentioned in this article.

More on Top TSX Stocks

gas station, car, and 24-hour store
Stocks for Beginners

Should You Buy Alimentation Couche-Tard Stock?

The decision to buy Alimentation Couche-Tard stock isn’t as easy as it once was. Here’s a look at the case…

Read more »

edit Woman in skates works on laptop
Stocks for Beginners

3 Defensive TSX Stocks for Lower-Risk Investors

Looking for some of the best defensive TSX stocks to buy? Here's a trio of options that will appeal to…

Read more »

Index funds
Tech Stocks

Constellation Software Stock: Buy, Sell, or Hold?

Unveiling the Code: Should you Buy, Hold, or Sell Constellation Software (TSX:CSU) stock at current levels?

Read more »

Hourglass projecting a dollar sign as shadow
Top TSX Stocks

Just Released: 5 Top Stocks to Buy in March 2024 [PREMIUM PICKS]

Forget the hype. The best opportunity is in a sector the market is ignoring.

Read more »

TFSA and coins
Top TSX Stocks

5 Canadian Stocks to Buy and Hold Forever in Your TFSA 

Are you planning your TFSA portfolio for 2024? Here are a few stocks you can buy at the dip and…

Read more »

question marks written reminders tickets
Dividend Stocks

Better Buy: Loblaw Companies or Metro Stock?

Loblaw Companies (TSX:L) stock is riding on recent momentum. Meanwhile, Metro (TSX:MRU) is executing for future earnings growth.

Read more »

Redwood trees stretch up to the sunlight.
Tech Stocks

These 3 Magnificent Stocks Keep Driving Higher

Constellation Software, Dollarama and another TSX stock have consistently generated positive investment returns. Here’s why they belong in your retirement…

Read more »

Male IT Specialist Holds Laptop and Discusses Work with Female Server Technician. They're Standing in Data Center, Rack Server Cabinet with Cloud Server Icon and Visualization
Dividend Stocks

Got $5,000? These 2 Growth Stocks Are Smart Buys

Kinaxis Inc (TSX:KXS) is a Canadian growth stock worth considering.

Read more »