Dear PGM Capital Blog readers,
On Wednesday, October 17, Canada became the first major world economy, and the second country in the world, after Uruguay, to legalize marijuana.
INTRODUCTION:
Cannabis was banned in Canada from 1923 until regulated medical cannabis became legal in 2001. In response to popular opinion, Justin Trudeau, the leader of the Liberal Party of Canada, committed while campaigning during the 2015 federal election to legalize cannabis for recreational use.
Justin Trudeau, Prime Minister of Canada
The Liberal Party of Canada won the election with 184 seats, allowing the party to form a majority government with Trudeau as Prime Minister.
The plan was to remove cannabis possession for personal consumption from the Controlled Drugs and Substances Act; however, new laws would be enacted to strengthen punishment of those convicted of either supplying cannabis to minors, or of impairment while driving a motor vehicle.
The legislation to legalize cannabis for recreational use (Cannabis Act, Bill C-45) was passed by the House of Commons of Canada in late November 2017; it passed second reading in the Senate of Canada on 22 March 2018. On 18 June 2018, the House passed the bill with most, but not all, of the Senate’s amendments. The Senate accepted this version of the Act the following day.
Prime Minister Justin Trudeau announced the next day that recreational use of cannabis would no longer violate criminal law as of 17 October 2018.
WEDNESDAY OCTOBER 17, 2018:
Across the country, as government pot retailers opened from Newfoundland to British Columbia, jubilant Canadians waited for hours in line to buy the first state-approved joints.
For many, it was a seminal moment, akin to the ending of Prohibition in the United States in the 1930s.
Cannabis was “flying off the shelves” in retail outlets and online stores across the country as soon as the clock struck midnight Wednesday.
The demand was so high that pot stores reported running low or completely out of cannabis on the first day.
So how much weed did Canadians purchase on legalization day?
Below video gives a breakdown of the cannabis sales by province.
PGM CAPITAL’s COMMENTS & ANALYSIS:
The first day of legalization saw both brick and mortar and online stores selling out quick as Canadians tried to get their hands on legal bud.
Canadians loved their legal weed so much that many stores ran out of stock of the first day of legalized cannabis and no one is sure when the shortages will end.
As of Thursday, provinces were sending out the proverbial SOS signal to cannabis producers in hopes of putting more marijuana on the shelves.
Legions of cannabis customers flocked to both dispensaries and online to take advantage of the newly legal pot market. And while most establishments were stocked up and raring to go by the time officials sales were permitted to get underway, the supply just wasn’t enough to keep up with the extreme demand.
Some early predictions suggested that the nation needed in upwards of 2 million pounds of weed to meet the demand. Health Canada recognized the potential supply problem and ramped up production efforts over the summer.
More than 70 additional cultivation facilities were employed to increase the supply. Even still, no one had any idea how much marijuana was retail ready by the time the stores opened their doors on Wednesday.
Aurora Cannabis IPO:
Aurora Cannabis Inc. said on Thursday October 18, that its shares have been approved for trading on the New York Stock Exchange and will start to do so on October 23, under the ticker symbol “ACB”. The shares are currently traded on the Toronto Stock under the ticker symbol ACB.TO.
During the latest quarter, the company’s revenues soared by 223% and became profitable, by making a profit of CAD 69 million.
During fiscal 2018, ACB.TO has pulled off 11 acquisitions, having bolstered the product line as well as the production capacity. Considering that there are currently two fully operational facilities.
The company has also received a license for 120,000 kg/year facility and there is a joint venture in Denmark to build the largest facility in Europe, with 1 million sq. ft. The joint company intends to grow and produce cannabis that will be sold throughout Denmark, Sweden, Norway, Finland and Iceland. Subsequently, in accordance with the growth rate, they intend to market to other EU countries as well.
In fact, Aurora has been doubling down on the European opportunity. One of its business units, Aurora Deutschland GmbH, is the largest distributor of cannabis.
Note that the company is one of the few licensed cannabis producers that has an E.U. GMP certification for imports, releases and distribution.
Aurora believes that market opportunity is more than 400 million people in Europe.
Below chart shows the performance of the Aurora shares during the past 52 weeks.
Based on the above we maintain our STRONG BUY rating on the shares of the company.
Disclosure:
I/We are long share holders of Aurora Cannabis.
Last but not least, before taking any investment decision, always take your investment horizon and risk tolerance into consideration. Keep in mind that share prices do not move in a straight line. A Past Performance Is Not Indicative Of Future Results. Technology stocks and stocks of startups and maturing companies, experience a higher volatility than the ones of developed market big-caps.
Yours sincerely,
Eric Panneflek