While adult-use marijuana had long been a controlled substance in Canada, the country legalized it in 2018. Many Canadian pot producers that are listed on U.S. stock exchanges enjoy strong sales due to major exposure in their home market. Consumers stocking up on marijuana during the pandemic, and the growth of pot-selling dispensaries across Ontario, have significantly boosted cannabis sales in Canada. In 2020, the sale of adult-use marijuana there surged 120% year-over-year to $2.1 billion.

While demand is strong on the home front, the industry also suffers serious competitive challenges from the nation’s black market. As a result, many Canadian pot producers are selling low-priced products to compete with the underground market. Also, despite robust demand, Canada has high unsold cannabis inventory levels, which is pressurizing  pricing further. So Canadian producers are now  foraying into the United States and European markets.

Canadian pot stocks listed in the U.S. are surging on the back of hopes of the widespread legalization of recreational marijuana usage. Any progress on this front pushes the stocks of pot producers higher. Regarding latest developments: On February 27, Virginia became the 16th U.S. state to  legalize recreational marijuana.

The stocks of many Canadian marijuana producers, including e Tilray, Inc. (TLRY), Aphria Inc. (APHA), Sundial Growers Inc. (SNDL), and Organigram Holdings Inc. (OGI) have more than doubled since the beginning of the year.  Let us take a closer look at these names now.

Tilray, Inc. (TLRY)

TLRY is one of the world’s leading cultivators and sellers of medical cannabis. In addition to Canada and the United States, the company has operations in the U.K., Argentina, Australia, Germany, Israel, Switzerland and Chile. TLRY also offers its products for research to physicians, pharmacies, governments, and hospitals in the clinical and commercial sectors.

TLRY ended yesterday’s trading session at $25.54, surging 194.9% year-to-date. During the past six months, TLRY gained 275.4%.

During the fourth quarter, ended December 31, 2020, TLRY climbed 26% year-over-year to $210.5 million, led by strong growth in  adult-use marijuana and in the international markets. Total cannabis kilogram equivalents declined 54% over the year to 6,901 kilograms. But TLRY’s  loss per share narrowed to $0.02 from $2.14 posted in the prior year period.

Notably, the company achieved an adjusted EBITDA goal of  $2.2 million. The company  achieved this with a combination of 26% sales growth and $57 million in cost reductions over the period. The company is  hopeful that its merger with APHA will  result in a C$100 million cost saving. In the past, TLRY has suffered from a high cash burn rate. The company has  yet to publish its cash flow for the fourth quarter.

TLRY has made an agreement with Grow Pharma for the importation and distribution of medical cannabis products in the U.K. In addition to  the United States, the company is pinning huge hopes on its expansion in the European markets. It has received  approval from Portugal’s regulatory authorities for its medical products produced in a GMP-certified facility located in Portugal. TLRY is also collaborating with Worldpharma Biotech for the distribution of  medical products in Spain. These developments indicate that the company is making serious progress on the market expansion front.

TLRY is in a stable position financially, and its merger with APHA is likely to add more depth to its business. However, currently its valuations look stretched. The stock is currently trading at a forward p/s of 15.74x, way above the industry average of.85x.

Aphria Inc. (APHA)

APHA is involved in the cultivation, processing, producing, and s commercialization of medical cannabis in Canada and globally. The company also sells pharmaceutical-grade medical cannabis, adult-use cannabis, and cannabis-derived extracts under its brands Solei, RIFF, Good Supply, Aphria, and Broken Coast.

On a year-to-date basis, APHA has rallied 157.8% to end yesterday’s trading session at $18.77. During the past six months, the stock soared 290.4%.

During the second quarter ended November 30, 2020, APHA’s revenue climbed 33.1% year-over-year to C$160.5 million. Its loss per share widened to C$0.42 from C$0.03 posted in the prior year period. The company’s gross margin contraction to 27.3% from 29.7% posted in the previous quarter is also alarming. As the company is currently merging with Tilray, it is critical that the  combined entity  break even. Hence, APHA’s shrinking gross margin might become an impediment.

In terms of revenue, APHA’s growth was subdued in North America. Its  retail cannabis sales also trailed  marijuana sales growth in Canada during September and October. This is a warning sign that  indicates that the company may be losing its foothold on the home front. Like TLRY, APHA is also now eyeing Europe for diversification and is relying heavily on German sales.

APHA is also hopeful of getting a firm foothold in the U.S. where and things seems encouraging under the new Biden administration. Thus, APHA closed its acquisition of the SweetWater Brewing Company in December 2020. SweetWater is one of the largest independent craft brewers in the U.S. and acquiring it is a good strategic move by APHA in its quest to operate in the country.

Sundial Growers Inc. (SNDL)

SNDL is involved in the production, sales, and distribution of recreational marijuana. The company also distributes and sells ornamental herbs and plants in the U.K. Top Leaf, Sundial Cannabis, Grasslands, and Palmetto are some of the brands under which SNDL sells its products.

During the third quarter, ended September 30, 2020, SNDL’s net cannabis revenue declined 36% year-over-year to $12.9 million, while its branded cannabis sales surged 77% over the year. Dried bulk cost per gram sold was $1.18, signifying a 12% decline over the previous year. SNDL’s net loss expanded 13% over the quarter to $71.4 million.

SNDL is reeling under mounting losses and a high level of impaired assets. The absence of strong fundamentals also fails to justify its valuation. The stock has soared in the recent times on the back of speculation over SNDL’s exploration of  “strategic alternatives.” In December, SNDL announced that it had acquired a special purpose vehicle that owned C$58.9 million worth of Zenabis’ senior secured debt. However, the acquisition has not yet materialized.

SNDL has surged 180.9% on a year-to-date basis to close yesterday’s session at $1.34. Over the past six months, the stock skyrocketed 306.5%.

Organigram Holdings Inc. (OGI)

OGI deals with the production and sale  of cannabis and cannabis-derived products in Canada. Through its Edison Reserve, Edison Cannabis Co., ANKR Organics, and Trailblazer brands the company offers cannabis flowers, extracts, edibles and oils, beverages, and other cannabis products. OGI also offers vaporizers for the medical marijuana market.

OGI’s net revenue during the first quarter, ended November 30, 2020, decreased 23% over the year to $19.3 million. The revenue was impacted by substantially lower wholesale revenue from licensed producers and a lower average selling price. Its loss per share widened to $0.17 from $0.01 posted in the same period last year.

The company is also dealing with high production cost due to diseconomies of scale. Its production during the quarter was quite low, resulting in unabsorbed fixed overhead. The current portion of OGI’s long-term debt surged 427% at the end of the quarter.

However, OGI has begun to revamp its production. It has launched 53 new stock-keeping units (SKUs) since July 2020 as a part of its product portfolio revitalization. OGI is known for its innovative product portfolio, which includes Edison RE:MIX THC powder, which is a dissolvable cannabis powder for a beverage. The company is also focusing on  high-margin Edison dried flower offerings. However, it is yet to be seen if there is sufficient  demand for these products to drive significant revenue growth.

A consensus revenue estimate for the quarter ending February 28, 2021 is $16.6 million, representing  a 4.3% decrease year-over-year. Meanwhile, its loss per share is likely to expand to $0.03.

OGI surged 127.8% on a year-to-date basis to close yesterday’s session at $3.12. Over the past six months, the stock rallied 138.6%.

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TLRY shares were trading at $27.86 per share on Tuesday afternoon, up $2.30 (+9.00%). Year-to-date, TLRY has gained 237.29%, versus a 3.97% rise in the benchmark S&P 500 index during the same period.

About the Author: Namrata Sen Chanda

Namrata is an accomplished financial journalist, with nearly a decade of experience. She specializes in interpreting news releases and framing investment strategies, and has worked with some of the leading companies in real estate, banking, insurance, mutual funds, financial research, fintech, and investment education. More...

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