In just five weeks, the biggest milestone in cannabis history will become reality. Despite enormous leaps, such as Uruguay becoming the first country on earth to legalize weed recreationally and California spearheading revolution by legalizing medical pot in 1996, it is what Canada does next when it legalizes adult-use pot that will really make history books.
Once the industry opens and weed is legal in Canada, experts predict that its recreational market will rake in annual sales of near $5 billion. That is an unspeakably large amount of cash, and it will very likely make weed stocks insanely lucrative. However, what few actually realize is that only a handful of cultivators will be receiving most of these profits.
Competition will be tough, but what comes next is the very definition of a monopoly. Despite Health Canada issuing 116 licenses already for the cultivation, retail, and production of cannabis by the end of August, only four marijuana growers may just end up generating more than half of all weed in Canada, for both domestic markets and for export to other countries.
Aurora Cannabis, (NASDAQOTH: ACBFF,) is the cultivator likely to lead most of Canada’s marijuana production. Via partnerships, acquisitions, and organic avenues, the company has already managed to work its way to an estimated potential of peak weed production of 570,000 kilograms annually. That is a lot of weed. Enough to supply massive markets across the world.
Currently, the company has to huge organic projects on the go, including the 800,000-square-foot facility called Aurora Sky, its once flagship asset, as well as its recently announced facility in Medicine Hat, Alberta, called Aurora Sun, which will span at least 1.2 million square feet. Both Aurora Sky and Aurora Sun are set to yield respectively around 100,000 kilograms and 150,000 kilograms annually.
When it comes to partnerships, Aurora is doing a roaring trade too. It forged a deal with Alfred Pedersen & Son, a vegetable cultivator in Denmark, to retrofit Aurora Nordic, an upcoming facility of one million square feet. Once retrofitted to cultivate marijuana, expectations are that it will easily yield at least 120,000 kilograms of pot every year.
Finally, Aurora also acquired CanniMed Therapeutics, based in Saskatchewan, for $852 million, and MedReleaf, based in Ontario, for a whopping $2.5 billion. MedReleaf had just finished acquiring 164 acres in Ontario, some of which included the Exeter facility under construction for cannabis cultivation. The deal with MedReleaf swelled Aurora’s peak yearly output by another 140,000 kilograms.
Canopy Growth Corporation
When it comes to market capital, Canopy Growth Corp., (NYSE: CGC,) is without doubt the largest pot stock. There is perhaps no other more secretive about its prospects for peak annual production for a company of its size. Despite management being unwilling to disclose specific targets for annual cultivation, the company already has 2.4 million square feet licensed for production in British Columbia.
Press releases previously suggested that the Canopy Growth is hoping to acquire 5.6 million square feet in aggregate production space. If one assumes average yields for the industry, it would not surprise anyone if the company easily delivers around 500,000 kilograms of pot every year. Interestingly, Canopy Growth no longer prioritizes expanding its capacity beyond finishing what it started in British Columbia.
After Constellation Brands made a game-changing investment in Canopy Growth, that, if approved, will boost cash on hand for the biggest weed stocks upwards of $4 billion, its management is focusing instead on building its infrastructures overseas, as well as bolstering its brand and marketing. Although acquisitions offer a production boost, this company is not expanding capacity rampantly anymore.
Despite Aphria, (NASDAQOTH: APHQF,) lagging notably behind the two top cultivators in production, the company is still in a league of its own when at full capacity, with an estimated potential of peak production sitting at around 255,000 kilograms of weed. Much like Aurora Cannabis, the company owes its success today to strategic partnerships, organic growth, and acquisitions.
Aphria’s organic projects include a massive four-phase, well-over-$100 million greenhouse facility called Aphria 1. Expected to be producing at full capacity by January next year, it spans one million square feet of growing space and will yield at least 100,000 kilograms each year. More recently, the company announced the building of an extraction facility focused solely on extracting cannabis concentrates.
Once operating, its concentrate facility should yield upwards of 25,000 kilograms of equivalent cultivation a year. Aphria also collaborated with Double Diamond Farms earlier this year to retrofit existing vegetable greenhouses for marijuana production. Called Aphria Diamond, this farm is set to produce at least 120,000 kilograms of high-grade weed when operating at full capacity.
That is not all Aphria has been up to, however. It has also been buying capacity in the form of acquisitions. Its deal with Broken Coast Cannabis in January of this year adds an already operational cultivator that, when at full capacity, is unlikely to produce anything less than at least 10,500 kilograms of pot on an annual basis.
The Green Organic Dutchman
The Green Organic Dutchman, (NASDAQOTH: TGODF,) is among this year’s biggest initial public offerings, or IPOs. Until around the middle of June, the company was under expectation to produce a minimum of 116,000 kilograms of cannabis per year when operating at full capacity. This includes 14,000 kilograms annually from Ontario, as well as 102,000 kilograms from its Quebec facility.
Then, when mid-June came, TGOD, its shorthand nickname, announced plans to expand capacity in as little as 13 days. It revealed a strategic partnership with Epican Medicinals on June 14 to build a 125,000-square-foot facility in Jamaica capable of producing 14,000 kilograms annually for both Jamaica and international markets.
Then, on June 21, the company announced plans to build another 287,245-square-foot facility to house its beverage division. When operational, this facility could product as much as 40,000 kilograms of production for the equivalent of cannabis. Lastly, on June 27, it joined with Queen Genetics/Knud Jepsen A/S in Denmark to construct a 200,000-square-foot facility for another 25,000 kilograms a year.
Half of a Lucrative Pie
When combined, if we assume these estimates accurate, these four companies are set to cultivate well over 1.5 million kilograms of marijuana every year. To put this in context, Health Canada puts domestic demand at only around one million kilograms, with estimates for some provinces coming in at nearer to 800,000 kilograms.
This indicates that foreign markets with medical pot industries will likely swallow up any domestic oversupply from Canada’s industry. However, aggregate cultivation for the industry as a whole will only be around three million kilograms by around 2021. This suggests that these four companies alone could control at least half of all cultivation, even with Health Canada issuing over 100 other growing licenses.