Cannabis Weekly Round-Up: Rumors of Aphria Tobacco Deal

During the past trading week (October 8 to 12) a Canadian producer posted its quarterly results indicating an increase in profits and investment returns.

A video interview with an executive from Horizons ETFs and general market updates complete this Cannabis Weekly Round-Up.

Aphria (TSX:APH) revealed to investors its performance during the first quarter of its 2019 year, which ended on August 31, on Friday (October 12). The company posted net income of C$21.2 million and a C$28 million gain from investments.

“While we experienced a short-term decline in adjusted earning in the first quarter, we continued to ramp up our production capabilities… and continued to move forward aggressively with the implementation of our automation infrastructure,” Vic Neufeld, Aphria’s CEO said.

We believe the automation investment in particular will provide Aphria with a significant competitive advantage and further our industry-leading low-cost structure.”

Shares of Aphria dropped sharply on Friday following the results. As of 1:30 P.M. EST the stock was valued at a price of C$19.23 and showed a 2.39 percent decline from its previous closing price.

Aphria enjoyed some momentum during the week as it was revealed in a report from The Globe and Mail the company was in talks for some form of a business relationship with tobacco and wine producer Altria Group (NYSE:MO).

Altria owns Philip Morris USA, the maker of Marlboro cigarettes and owns a significant stake in for alcohol producer Anheuser-Busch InBev (NYSE:BUD). No deal is finalized and Aphria was forced to issue a statement indicated no agreement was in place at the time.

Doug Waterson, CFO and portfolio manager with Faircourt Asset Management and manager of the Ninepoint UIT Alternative Health Fund had previously told the Investing News Network (INN) an entry from the tobacco industry into cannabis could cause some potential bad optics.

“I would say it’s more important to [Tobacco] to do a deal but it’s also probably more difficult just politically, [with] shareholders, everything,” he said. “It’s a challenging thing.”

UK moves forward with medical cannabis

British Home Secretary Sajid Javid confirmed this past trading week patients in England, Wales, Scotland and Northern Ireland will be able to obtain medical cannabis from doctor prescriptions starting in November.

Following an individual case of access to cannabis oil from two child patients, the UK moved into a more sensible legislation with the use of the drug for medical needs.

Aphria’s CEO Vic Neufeld congratulated the UK on its decision through a tweet.

I applaud the UK government for taking this step. This is fantastic for patients in need across the UK, and another major milestone in the advancement of #medicalcannabis around the world. https://t.co/ylmA5ZsPy3

— Vic Neufeld (@Vic_Neufeld) October 11, 2018

Market updates

TerrAscend (CSE:TER) revealed a strategy to become a multi-state operator of cannabis assets in the US market. The company already owns Canadian licensed producer (LP) Solace Health, but is now seeking an entry into the fractured market.

Michael Nashat, president and CEO of TerrAscend, said the company plans to grow its business organically through disciplined acquisitions.

The company will receive backing from Canopy Rivers (TSXV:RIV), a cannabis investment spin off from Canopy Growth (NYSE:CGC,TSX:WEED).

After a securities filing revealed Aurora’s intended destination for its US stock was the New York Stock Exchange (NYSE), on Tuesday (October 9) the company confirmed its intention and expectation to list before the end of October.

“Through our NYSE listing, Aurora joins an established group of mature global brands with improved access and exposure to an engaged international institutional investor audience,” Terry Booth, CEO of Aurora, said in the announcement.

Aurora would join fellow Canopy Growth as the only two Canadian LPs to be listed in the exchange.

As part of our continued coverage of the legalization of adult-use cannabis in Canada, INN had the opportunity to interview a collection of experts regarding the overall state of the cannabis public markets and their expectations of the sector following the crucial event.

Our first interview was with Mark Noble, senior vice president of ETF strategy with Horizons ETFs. Noble discussed the benefits to ETF investing in an emerging space like cannabis and prepared investors for what he sees as a potential downside market following legalization, but just ready for global gains on a completely different level.

Watch the full interview below:

Don’t forget to follow us @INN_Cannabis for real-time news updates!

Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

** This article is updated each week. Please scroll to the top for the most recent information**

Cannabis Weekly Round-Up: Supply Won’t Meet Demand Following Legalization

By Bryan Mc Govern, October 5, 2018

During the past trading week (October 1 to 5) a new report indicated cannabis supply will be short right as the legalization process takes place in Canada.

A soft beverage executive revealed intentions to look over at the cannabis market and general market updates complete this Cannabis Weekly Round-Up.

A new study from the University of Waterloo and the C.D. Howe Institute, according to a report from Bloomberg, shows the supply of cannabis in Canada will reach 210,000 kilograms in the first year of legalization, well short of the estimated demand of 610,000 kilograms the data puts forward.

“There will not be enough legal supply, especially during the first half of the year following legalization, primarily because of the slow rate of licensing producers,” the report indicated. The researchers, Anindya Sen with the University of Waterloo and Rosalie Wyonch from C.D. Howe, recommended Health Canada to streamline the process which LP applicants undergo.

The entry of beverage companies into cannabis got another boost as Hugh Johnston, chief financial officer (CFO) of PepsiCo (NASDAQ:PEP) confirmed on a televised interview the company will take a critical look at the emerging sector.

The executive stopped short of announcing any deals or potential entries. However, intentions have been determined of the possibility for creating new cannabis infused beverages.

“Along with many others in the beverage industry, we are closely watching the growth of non-psychoactive CBD as an ingredient in functional wellness beverages around the world. The space is evolving quickly. No decisions have been made at this time,” Coca-Cola said as reports swirled indicating the beverage company would partner up with Aurora Cannabis (TSX:ACB) in some form.

Partnership brewing in the cannabis space

In August Molson Coors Brewing (NYSE:TAP;TSX:TAP) made its move for the cannabis space by forming a joint venture with Canadian licensed producer (LP) HEXO (TSX:HEXO). Then on Thursday (October 4) the two finally revealed the name and team behind the new company.

The joint venture, called Truss, will have former Molson executive Brett Vye act as CEO while Sebastien St-Louis, CEO of HEXO, secures a spot in the board of directors. The split of control for the new venture has been set as Molson taking a 57.5 percent stake and HEXO getting the remaining 42.5 percent.

“When consumable cannabis is legalized in Canada, Truss will be ready to make its mark as a responsible leader in providing high-quality beverages for the Canadian consumer,” Vye said in a press release.

Market updates

As the cannabis space continues to grow new listings appear for investors to consider. During the past trading week two companies revealed their intentions to begin raising capital in Canada. Through a reverse takeover (RTO) Denver-based cannabis company Dixie Brands will pursue a listing on the Canadian Securities exchange (CSE).

“By going public on the CSE, we’re investing in Dixie’s future for continued growth with a focus on quality, product innovation and scale,” Chuck Smith, CEO of Dixie Brands, said in a press release. Dixie will have to wait for approval from the CSE to list.

Additionally Canadian LP Zenabis is hitting the public market through an RTO with Bevo Agro (TSXV:BVO). The new company will be renamed to Zenabis Global and will count with two Canadian licensed facilities.

The company is planning an expansion and upgrade to its Langley, BC, facilities and once completed expects to hold 660,000 square feet of indoor space and 2.8 million¹ square feet of greenhouse space in BC, New Brunswick and Nova Scotia.

Instability has followed CannTrust (TSX:TRST) this trading week after it was confirmed on Monday (October 1) co-founder and CEO Eric Paul was stepping down in favour of new executive leader Peter Aceto.

Paul would become a chairman of the board and perform duties of special advisor to the current management team. Aceto comes with the experience of acting as CEO of Tangerine, an online banking company.

The producer holds supply agreements with Ontario, Nova Scotia, New Brunswick, PEI, Newfoundland, BC, Alberta and Manitoba for adult-use cannabis and despite being so close to the critical date, October 17, Paul said he thinks the timing was right for the executive switch.

Shares of CannTrust sharply declined during the trading and as of 2:00 p.m. EST had lowered 6.56 percent in value over the past five trading days. Stock of the producer were valued at a price of $12.10 at the same time.

The Investing News Network (INN) provided investors with a quick recap on the biggest stories of September for the cannabis sector in video form. Watch below to catch up on what grabbed our attention during the month.

As a last thing we want to remind investors with the legalization of recreational cannabis on October 17, next week will mark the start of our special coverage of the occasion. Investors can expect stories and interviews on the impact the event will have on the public sector.

Don’t forget to follow us @INN_Cannabis for real-time news updates!

Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.