Research and Development (R&D) expenditures are an important metric that investors look at when analyzing companies in an early-stage, nascent industry such as cannabis. R&D expenditures can be used for a variety of purposes, including product development and testing. In an evolving industry such as cannabis, a strong brand offering is a key differentiator essential for customer retention and obtaining a competitive advantage. Strong brands can be created by providing consumers with products that are differentiated from competitors, which in turn requires R&D spending. R&D spending is also important in developing new product lines. Non-traditional cannabis products, such as cannabis-infused beverages and edibles, will require significant development and testing costs. As such, companies that currently have high R&D expenditures may sacrifice short-term earnings but may very well reap long-term rewards in the form of a more differentiated product portfolio. The Canadian marijuana stocks we’ve weeded out today all emphasize research and development.

Aurora Cannabis Inc. (TSX:ACB) – $8.75
Cannabis

Aurora Cannabis is a licensed producer and distributor of medical cannabis. ACB expects to have just under 1,000,000 sq. ft. of licensed production space and plans to produce at least 270,000 kilograms of cannabis annually. The Company also has 20% ownership interest in Liquor Stores N.A., the dominant alcohol retail chain in Western Canada. It intends to convert several existing outlets, as well as develop new stores, for the sale of cannabis to the recreational market. Additionally, the Company has signed a supplier agreement with the Province of Québec to supply cannabis for the province’s adult consumer market. Aurora has also embarked on an aggressive international expansion strategy that aims to have operations or sales in foreign markets such as Germany, Denmark, Italy and Australia. On October 16, 2018, the Company announced the release of its high-potency, vape-ready CBD oil product line, Aurora Cloud. The move marked Aurora as the first licensed producer (LP) to launch a vape-read, high potency CBD oil cartridges. Its R&D initiatives are further demonstrated by its June 2018 acquisition of Anandia Laboratories Inc., a leader in science, genetics, and cannabis product testing.

• Market Cap: $8.4 Billion
• YTD Returns: -26.0%

FSD Pharma Inc. (CSE:HUGE) – $0.43
Cannabis

FSD Pharma is in the process of transforming its primary facility in Cobourg, Ontario, into the world’s largest hydroponic cannabis production site. Hydroponics is a method of growing that does not use soil, which involves the submersion of the plant’s roots in a nutrient-rich solution. On September 26, 2018, Horizons completed its rebalancing of the Horizons Marijuana Life Sciences Index ETF (TSX:HMMJ) to include FSD Pharma in its consolidated holdings. The Company has entered into a strategic partnership with SciCann Therapeutics, providing FSD Pharma access to a cannabinoid scientific research platform. The platform will allow FSD Pharma to execute rigorous clinical trials to efficiently take its products to market.

• Market Cap: $577.7 Million
• YTD Returns: +258.3%

Tilray Inc. (NASDAQ:TLRY) – US$107.27
Cannabis

Tilray is a company focused on medical cannabis research, cultivation, and distribution. The Company operates internationally through its subsidiaries in Australia, Canada, and Germany. On September 13, Tilray announced it had obtained regulatory approval to export flower-based products to Germany. This supplements the oil-based products the Company already exports to Germany. On November 8, 2018, Tilray announced a definitive agreement to partner with IntelGenx Corp to produce cannabis-infused VersaFilm products. VersaFilms is a drug delivery platform that improves the bioavailability of cannabis-based medical products. As pharmaceuticals may provide higher margins than traditional recreational cannabis products, this may pay off in the form of higher earnings in the years to come. Tilray invests heavily into R&D, having carried out several clinical trials in countries including Australia and Canada.

• Market Cap: US$10.0 Billion
• YTD Returns: +379.1%