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Canadian Licensed Producers (LPs) have once again become a focal point of the cannabis industry after recently coming under considerable pressure, a trend that we have been closely monitoring.

During the last month, Canadian LPs have been trending lower and we believe that this weakness is the result of two primary developments: 1) The firing of Bruce Linton as the CEO of Canopy Growth (WEED.TO) (CGC), and 2) The non-compliance notice issued by Health Canada to CannTrust Holdings (TRST.TO) (CTST).

Although the recent decline has been significant, we believe that the self-implemented suspension on CannTrust will benefit other Canadian LPs. Canadian authorities expected CannTrust to be a major supplier to the medical and recreational market on a going-forward basis. The suspension created a significant loss for the current and future production capacity needs of the Canadian market, and this will benefit other LPs.

Historical trends lead us to believe that the Canadian cannabis market will continue to be under pressure over the near-term. After the recent weakness, valuations look much more attractive and we will continue to closely monitor this vertical of the cannabis industry. Today, we have highlighted 5 Canadian LPs that should benefit from the issues with CannTrust and believe that these are opportunities to be watching.

WeedMD: A Growth Story to be Watching

We believe that WeedMD Inc. (WMD.V) (WDDMF) is well positioned to capitalize on the recent issue with CannTrust and is an opportunity that we are closely following. Earlier this year, we visited the Aylmer facility and were beyond impressed with the scale of this operation. When you combine the company’s expanding indoor footprint with the recently planted outdoor cultivation footprint, you have a company with major growth prospects undervalued by the market.

Another reason we are excited about WeedMD is due to the focus on the cannabis concentrate market and expect this to be a major aspect of the business in 2020. Demand for cannabis concentrates continues to increase and are the input product required to create cannabis infused prodcuts. With Canada’s edible and cannabis oil market expected to open in the coming months, WeedMD will be well positioned to capitalize on this opportunity and should see strong demand for its products.

Based on the analysis we have conducted on the products purchased on the Ontario Cannabis Store (OCS), we can understand the high value of demand for WeedMD’s products, are amongst the first to sell out when new products are launched. We are bullish on the existing demand for the company’s products and expect to see the increasing demand quickly absorbed by the market.

Despite the recent pullback by the Canadian LPs, WeedMD continues to trade at a major discount to its peers. As the company continues to execute on its expansion, we expect to see fundamentals improve and will monitor how the team continues advance operations. WeedMD has significant catalysts for growth (the harvesting of the outdoor cultivation crop, the opening of the cannabis concentrate facility, and the completion of the expansion) and this is an opportunity that we continue to closely follow.

Aleafia Health: A Medically Focused Cannabis Play

One of the Canadian LPs that has been impacted the hardest by the recent weakness in the sector is Aleafia Health Inc. (ALEF.TO) (ALEAF). During the last month, the Canadian LP has reported several significant developments as it relates to the international cannabis opportunity, the outdoor cultivation opportunity, and its improved balance sheet.

Earlier this year, Aleafia Health completed the acquisition of Emblem and we expect this aspect of the story to play a key role in the company’s ability to capitalize on the reduction in capacity on account of CannTrust. Prior to its acquisition, Emblem had been highly focused on Canada’s medical cannabis market and this should help Aleafia Health capitalize on the capacity void. Emblem has been highly focused on the development of high-margin, value-added cannabis products and Aleafia can sell these products domestically and abroad.

A few weeks ago, Aleafia Health reported a major milestone and was granted multiple export permits from Health Canada which will allow the company to start shipping cannabis to international markets. In the coming weeks, the company expects to ship its branded medical cannabis oils which will be distributed by Australian Licensed Producer CannaPacific. This was a strategic decision for Aleafia Health since it owns 10% of CannaPacific. We are favorable on the growth prospects associated with the international cannabis opportunity.

Another reason we are excited about Aleafia Health is due to the significant strong balance sheet. Earlier this month, the company raised more than $40 million through a private placement which will solidify and accelerate the expansion of the company’s global cannabis health and wellness ecosystem. We find this to be a significant aspect of the story as Aleafia Health is in the middle of a major expansion.

Aleafia Health has significant catalysts for growth and expects capacity to surge higher and we are bullish on this aspect of the story. The company can use this capacity to take advantage of the capacity void left behind by CannTrust, especially on the medical side of the business. We are bullish on the amount of revenue that can be generated once the company is operating at full capacity and this is an opportunity to be watching.

Emerald Health: Well Positioned for Growth via a Joint Venture

Emerald Health Therapeutics (EMH.V) (EMHTF) has fallen more than 50% from its April highs and the Canadian LP has been one of the hardest hit over the last quarter. The recent weakness has been considerable and has also been surprising since the company has significantly advanced its fundamental story during the last month.

Last week, Emerald Health’s 50%-owned Pure Sunfarms joint venture reported a major milestone and achieved its full production run-rate of 75,000 kilograms of dried cannabis at its 1.1 million square foot Delta 3 greenhouse. Although this was a significant development, the market did not respond favorably and we were surprised by this. According to Emerald Health, Pure Sunfarms has been profitable in its initial two quarters. We will monitor how this aspect of the business continues to be a major growth driver for the entire company.

With a facility of this scale, Emerald Health is well positioned to capitalize on the Canadian cannabis market. The company is well positioned to fill the void left by CannTrust and will monitor how the team is able to execute on this. Later this year, Pure Sunfarms expects its in-house extraction capabilities to be operational and expect this to be a catalyst for the entire business.

Emerald Health also announced that Pure Sunfarms has commenced conversion of its second 1.1 million square foot (25 acre) greenhouse operation, Delta 2, for cannabis production, which will double Pure Sunfarms’ annual output at full production to 150,000 kilograms. By mid-2020, Pure Sunfarms expects to complete its first harvest at the Delta 2 facility. This is an opportunity that we are closely following.

Organigram Holdings: A Canadian Execution Story

During the last year, Organigram Holdings (OGI.V) (OGRMF) has been nothing short of an execution story and has secured supply agreements with every province in Canada. This represents a major milestone for the Canadian LP and Organigram has several major potential catalysts for growth.

With a significantly strengthened balance sheet, Organigram has put its capital to work and has been laser focused on increasing overall production capacity. In late June, the company received approval from Health Canada for the licensing of 17 additional cultivation rooms within the Phase 4A/4B perimeter of the building. We will be monitoring how the team is able to execute on this.

The approval of the new cultivation rooms represents an additional 14,000 kilograms per year of increased target production capacity (total licensed production capacity of 61,000 kilograms per year) and we expect to see Organigram benefit from the issues with CannTrust. The company has attractive growth prospects and has been highly focused on the cannabis infused product opportunity. Organigram is led by a management team that has had its finger on the pulse of Canada’s cannabis industry. Once edibles are approved to be sold in Canada, Organigram is well positioned to capitalize on this vertical of the cannabis industry and this is something that we are watching.

Organigram has held up better than most of its peers over the last few months and the market has become much more favorable on this opportunity. The company has a strong balance sheet and has attractive leverage to the entire Canadian market. We will be monitoring how the team continues to advance its fundamental story within the domestic and the international opportunity.

Aurora Cannabis: A Global Growth Story

Aurora Cannabis (ACB.TO) (ACB) is one of the best-known names in the cannabis industry and is an opportunity that we have been closely following since 2015. During the last year, the Canadian LP has become one of the largest players in the global cannabis market. We are favorable on this aspect of the story on a going forward basis.

Over the last few years, Aurora Cannabis has advanced operations through a series of inorganic and organic growth initiatives. From acquisitions to capital raises, the Canadian LP has several major potential catalysts for growth and we find this to be significant. Earlier this year, Aurora Cannabis added Norman Peltz as a Strategic Advisor, one of the best-known names to have entered the cannabis industry from the consumer product goods market. Peltz’s deep knowledge of the consumer goods industry should prove invaluable to Aurora.

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