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Aurora, Aphria and Canopy Growth – what is the plan for 2018?

While US-based cannabis producers are still scrambling and attempting to get licenses to grow, in Canada, Aurora Cannabis, Aphria and Canopy Growth are looking at the odds of selling their marijuana to foreign companies.

2017 has been a fun year for all those engaged in the Canadian marijuana market, both medical and recreational.

Three of Canada’s largest producers went ballistic during the course of this year and, at one point or another, were estimated worth at over 2 billion USD.

So, without much further ado, let us dwell deeper into the steps these three companies made and which steps they might make.

Aurora Cannabis (TSE: ACB)

Aurora Cannabis is a Vancouver, BC based licensed producer, while both Aphria and Canopy Growth are not based on the West Coast.

This puts Aurora Cannabis in a unique position – they will be able to hugely affect the Pacific US market if they play their cards right.

With recreational cannabis already being legalized in both Washington, Oregon, Nevada and in a couple days California, Aurora can make a huge impact by signing deals with American retailers and distributors in the Pacific US.

The future may hold much for the British Columbia based cannabis producer, but what about what they have done in this year?

In 2017, Aurora Cannabis by 195% since the year began and 1,069% over the trailing two-year period, and with good reasons too.

This puts the pot stock at third largest in Canada at the moment, with a market cap in excess of $2.1 billion, and there are three majors reasons for this.

Medical and federal legalization

Health Canada reports that the enrollment of medical patients has been steadily growing at about 10% a month.

This means that the number of sales and margins is expected to increase as well, which implies that the worth of the company grew as well.

Federal legalization of cannabis in Canada has been announced in 2017 by Prime Minister Justin Trudeau, who said that recreational cannabis will be sold in Canada as of July 1st 2018.

This pushed Aurora Cannabis, as well as almost every other producer, into overdrive as companies started chasing down smaller companies and making huge deals.

Unexpected profits and deals

Seeing how Aurora Cannabis hasn’t made profits up to the first quarter of this year, and in fact were not expected to make profits, this came as a surprise to everyone.

In that quarter, Aurora Cannabis made $2.8 million in profits, which is still just a speck of dust when compared to its market cap of $2.1 billion.

They also saw sales improve by 169% from the prior-year period, and strictly dried cannabis sales grew by 69%.

Not only that, but the average selling price grew by 30% from the prior-year period and growing costs were also dropped.

In one of the most unexpected turns of events, Aurora engaged CanniMed in a hostile takeover, after the CEO of CanniMed rejected Aurora’s initial offer.

In a plan to combine AuroraSky (which I’ll talk about in just a minute) with CanniMed in order to create a medical giant, Aurora offered a deal for a maximum of $425 million, or approximately $18.75 a share.

Combining the two would create a powerhouse able of putting out 130,000 kilograms of dried cannabis every year, and a base of over 40,000 actively enrolled medical patients.

Aurora also made a couple other deals which went fairly well when compared to CanniMed, one such deal was the acquisition of Hempco.

Aurora Sky soon to be online

Aurora’s project called Aurora Sky is an 800,000-square-foot highly automated growing facility which should be ready to come online in the summer of 2018.

It is said that the production capacity will be around 100,000 kilograms of dried bud per year.

This will be a significant boost to Aurora’s capacity and production, as there will most definitely be a large demand for high-grade cannabis both on the medical and recreational market in the foreseeable future.

Diluted stock raising questions

If you are sold on the Aurora Cannabis stock, don’t rush into any decisions.

Aurora Cannabis has had a terrible track record when it comes to diluting its stock despite strong recent stock gains.

Seeing how they are well funded, the company engaged this year in a bunch of bought-deal offerings and debt conversions into common stock, which destroyed their stock at the time.

Sean Williams of the Motley Fool said the following:

With little in the way of positive cash flow, bought-deal offerings and debt conversions are likely to remain its primary source of funding in the intermediate term.

Aphria Inc. (TSE: APH)

Aphria played the game really well this year, as their market cap has seen a tremendous increase late in the year.

That increase was surely not without good reason, as Aphria signed an agreement to supply Canadian retail chain Shoppers Drug Mart with medical marijuana for the next 5 years.

But, what made the market cap jump in over a billion dollars in just a few days? Surely not that deal alone.

The ability of Aphria to produce cheap, yet extremely high-grade cannabis is what made Aphria stand out of the group of mediocre producers.

Deals everywhere

In what turned out to be one of the biggest bought deals of the year, announced that it entered into an agreement with Clarus Securities.

Aphria entered this deal on behalf of a group of underwriters to purchase7,272,740 common shares at a price of C$13.75 for proceeds of roughly $77 million USD.

Another deal that happened weeks before was the one with Resolve, a Canadian technology company that focuses on intelligent medical cannabis delivery devices.

According to the terms of their agreement, Aphria will provide cannabis to Resolve’s proprietary delivery pods and cartridges for sale on the Canadian medical market.

Looking overseas for immediate results

Seeing how Canopy Growth was engaged in the European market, and Aurora attempted to get in on the US Market, Aphria also wanted a share of the foreign cake.

This year, Aphria finished its first delivery of cannabis oil to Australia.

Aphria has previously announced their deal with Australian MedLab in which Aphria will “produce and supply high-yield cannabis extracts for Medlab” which is to be used in human trials.

Sean Hall, CEO of Medlab said:

“This is an important step for Australian medical science as we prepare to begin our first clinical trial for advance cancer pain patients to help them manage their pain with a cannabis-based medicine.”

However, Aphria also tried and failed at getting in on the US market, in a move that landed them some negative press and quite close to a purge from the TSX.

On October 16th TSX issued a statement, in which it warned all companies listed not to make moves and deals “with ongoing business activities that violate U.S. federal law regarding marijuana are not complying with listed requirements.”

Quickly after Aphria CEO Vic Neufeld met with the TSX and officially backed out of all current plans for the US market seeing there still are huge risks in that market.

Canopy Growth Corporation (TSE: WEED)

Canopy Growth has been by far the most successfull marijuana producer in Canada this year, as it seems that they really do have the golden touch.

This year has been marked in the classic Canopy Growth manner – with a bunch of deals and acquisitions.

Seeing how we spoke in detail of the Canopy Growth stock just a couple weeks ago, you can check out the yearly review of Canopy Growth below.

So, let us review three biggest plays Canopy made this year.

Home, finally

They started the year strong as Bruce Linton, CEO of Canopy Growth, set his eyes upon acquiring the building they made all their moves from.

Linton quickly put the money down for 1 Hersheys Drive — a hefty $6.6 million. The entire 472,000 sq. ft facility could almost triple production and processing capacity at that time.

Focusing on Tweed and CraftGrow

Canopy growth made huge moves in 2017 trying to put Tweed into the big picture, and their CraftGrow online shop which was destined to make it big.

In April Tweed announced a couple new deals and the construction of a 300,000 sq.ft indoor grow in collaboration with rTrees, a late-stage ACMPR producer in an attempt to spread towards the West.

Soon after, Tweed signed AB Laboratories Inc, JWC Ltd. and Canada’s Island Garden to the CraftGrow online store. These three companies all brought a variety of new product to the 50,000 registered patients.

By May, CraftGrow raised over $20 million in seed funding.

In early August the Craft Grow program got another partner by adding PheinMed Inc to the Tweed Main Street cannabis ecosystem.

In early October the Craft Grow program got another partner by bringing Valens GroWorks to the table, and that’s when (or maybe a bit before) when Canopy Growth completed their expansion to the west.

At this point, Tweed has entered into a definitive joint venture agreement with a British Columbia based greenhouse owner to form a new company, BC Tweed Joint  Venture Inc.

Later in October Tweed announced that it has launched a strategic partnership in the Jamaican cannabis market with Grow House JA Limited.

Tweed Limited JA is to serve the needs of the Jamaican medical cannabis market.

Lastly, in December, cannabis producer Delta 9 announced their cannabis products will be sold through the CraftGrow line via Tweed’s online store.

Constellation Brands buys 10%

OK I lied, they bought 9.9% but ten percent just makes everything so much smoother.

Constellation Brands is one of the leading beverage alcohol suppliers in the United States, which means they already have some experience in the vice game, and can see the best opportunities out there.

In the deal, an affiliate of Constellation Brands was to invest approximately C$245 million, for which in return Canopy will  give a 9.9% equity share to the affiliate, as well as an equal number of common share purchase warrants which are to be made available to Constellation Brands.

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