Aurora Cannabis Inc (TSX:ACB) vs. Canopy Growth Corp (TSX:WEED): Provincial Supply Agreements

Does Canopy Growth Corp (TSX:WEED)(NYSE:CGC) have a clear lead in the battle for provincial recreational marijuana supply contracts?

| More on:

The marijuana market battles for the control of the biggest market share in the Canadian adult use market are still raging on, with the country’s most populous province, Ontario, yet to announce any cannabis supply agreements with the warring licensed producers (LPs), but winners and losers are already emerging before the war is over, with seven provinces and one territory having announced supply agreements with selected LPs so far.

In its recent quarterly financial results earnings release on August 14, Canopy Growth (TSX:WEED)(NYSE:CGC) co-CEO Bruce Linton is quoted saying, “with an estimated 36% of the total supply committed to date to the provinces and territories, we have secured by far the deepest channel into the Canadian recreational cannabis market,” and it seems like the largest marijuana producer is in a clear lead.

But how big is the lead?

Canopy has clinched a deal with every province and territory that has announced contracts so far, yet its competitors have been awarded sporadic contracts, but the deal numbers could be very interesting.

The following table highlights the deal volumes for selected LPs of interest.

Provincial Supply Agreement Volumes for Selected LPs. Source: Author Aggregation From Press Releases.

 

 

As can be seen from the table above, Canopy has clinched up to 67,500 kilograms in provincial supply deals for the first year of recreational sales beginning October 17, and Aurora Cannabis (TSX:ACB), the closest rival, is sitting at 55,000 kilograms in reported volumes.

That said, the fact that Aurora did not release information on the British Columbia agreement makes our comparisons very tricky. However, with the available numbers, if we add the rising contender’s latest acquisition’s (MedReleaf) numbers to Aurora’s tally, its volumes will creep up 63,000 kilograms, well within Canopy’s range.

Worse still, MedReleaf did not disclose deal volumes in two provinces, namely the Alberta and British Columbia supply agreements, bringing further complication to comparisons efforts. Further, Canopy’s latest acquisition, Hiku Brands, did not release figures in its supply agreement with British Columbia. However, Hiku Brands’s revealed volume of 2,000 kilograms in the Manitoba supply deal increases Canopy’s tally to 69,500 kilograms — an impressive total indeed.

Could MedReleaf volumes cover Aurora’s lag?

It’s possible that MedReleaf’s unannounced volumes in two contracts could cover up the 6,500-kilogram gap between the two leading cannabis giants, especially considering that British Columbia tried to share the supply volumes between the 31 winning LPs and could easily lift Aurora figures by anything near or above 3,000 kilograms (in my opinion).

Therefore, it’s a bit of a challenge to tell how big Canopy’s lead can be in announced provincial deals so far.

Could Canopy widen the gap?

The most populous province, Ontario, is yet to announce supply agreements with any LP, but odds are highly in favour of Canopy. Canopy is based in Ontario and has a planned 1,870,000 square feet in productive capacity on five facilities in Ontario, thus making it a favourite to win a sizable supply contract.

Careful, though; MedReleaf is also based in Ontario, and Aurora is in line to get a significant deal there.

Foolish bottom line

A special mention is made of Hydropothecary, which won a five-year supply deal for 204,000 kilograms in Quebec, making the deal the largest so far in the market.

Although Canopy and Aurora are separated by a small margin in supply agreement volumes, the former has deals spread across all provinces so far, while Aurora only has supply agreements with three provinces.

Thanks to latest acquisition of MedReleaf, Aurora will add three more contracts to its portfolio, but Canopy’s portfolio is more widely distributed than that of its closest competitor and thus is of higher quality and of lower risk.

Investors should be careful, though; Aurora’s press release of about the Quebec deal stated that “supply quantities will be determined based on demand on a month-by-month basis, with a minimum of 5,000 for the first year, but no set maximum.”

Making an equity valuation thesis based on supply agreements could be a tricky endeavour right now.

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 Brian Paradza has no position in any of the stocks mentioned.

More on Investing

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »

Target. Stand out from the crowd
Investing

Prediction: This Canadian Growth Stock Could Double by 2030

Alimentation Couche-Tard (TSX:ATD) is a top growth stock that could do well over the next six or so years.

Read more »

Businessman holding AI cloud
Tech Stocks

Could Investing $20,000 in Nvidia Make You a Millionaire?

Nvidia stock has made investors millionaires in the last 10 years. Is it too late to invest to become a…

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

money cash dividends
Stocks for Beginners

Have $500? 3 Absurdly Cheap Stocks Long-Term Investors Should Buy Right Now

If you're looking for cheap stocks, these three have a huge future ahead of them, all while costing far less…

Read more »