The summer has been a rough time for Canadian cannabis stocks and Horizons Marijuana Life Sciences ETF (HMMJ.TO) (HMLSF) has fallen approx. 25% from its late June highs.

This weakness has taken place on light volume and we have been closely monitoring this trend. Although the decline has been painful, it does not come as a surprise. During the last three years, we have seen the cannabis sector pullback during the summer months and this year has been no different.

We expect the selloff to end very soon and investors need to be monitoring the cannabis sector. Today, we have issued an update on three Canadian licensed producers that are worth highlighting.

Aurora Cannabis trades lower on positive update

Yesterday, leading Canadian cannabis producer Aurora Cannabis (ACB.TO) (ACBFF) issued an update and the market responded negatively. We were favorable on the operational update and believe it provided great visibility into the company’s global cannabis operations.

From Australia to Germany, Malta to Denmark, Aurora Cannabis continues to enter new markets and increase market share. We are favorable on the continued execution and expect these investments to pay off significantly.

Although Aurora has been nothing short of an execution story, the shares have been under considerable pressure and are trading at oversold levels. During the last month, Aurora has fallen more than 30% and we are monitoring the shares for a bottom. Aurora has been underperforming a market that has been trending lower and we will be keeping an eye on this one.

LiveWell: An undervalued opportunity

In late June, Livewell Canada Inc. (LVWL.V) commenced trading on the TSX Venture Exchange and we have been closely monitoring this opportunity. The Canadian cannabis producer offers a compelling opportunity and we find the valuation to be very attractive.

Yesterday, LiveWell announced that it has secured 1,000 acres of Canadian industrial hemp biomass for the purpose of extracting and producing cannabinoid (including CBD) products for distribution in Canada. Using current extraction technology licensed to LiveWell, the company anticipates extracting approximately 25,000 kg of CBD for sale under the ACMPR. It is expected to be harvested in mid-August and brought to market in 2019.

Based on observable broker quotations, the current wholesale value for each kilogram of CBD isolate is approximately US$6,500. Additionally, as part of this transaction, LiveWell secured an option to buy an additional 1,000 acres of Canadian industrial hemp biomass at the same price no later than September 30th. The total purchase consideration for this transaction, including the option, was $10 million.

Although this was a significant announcement, the shares edged lower and we are monitoring how they trade from here. This purchase is in line with the company’s strategic vision to become a global CBD market leader, by delivering high-quality innovative CBD health and wellness products. We are favorable on this aspect of the business and expect it to add value in 2019.

LiveWell represents a differentiated and undervalued opportunity. The company has a strategic relationship with Canopy Growth (WEED.TO) (CGC), is in the middle of a major growth cycle, and is undervalued when compared to its peers. The company has several levers for growth and this is a company worth watching. 

Auxly: Proceed with caution

Earlier this year, Cannabis Wheaton decided to change to Auxly Cannabis Group (XLY.V) (CBWTF) its name in an attempt to wipe away some of the previous issues and concerns. The change did not accomplish this goal and the shares have been under significant pressure in 2018.

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