Cannabis Stocks Heating Up as Legalization of Recreational Marijuana Expected in Canada in Coming Months

Canada Set to Legalize Recreational Use of Marijuana

The recreational use of marijuana in Canada is expected to be legalized in the coming months. To meet the expected demand for marijuana, some of the industry’s biggest cannabis growing companies are hoping to grab an even bigger piece of this burgeoning, lucrative market.

Legalizing the recreational use of marijuana was a major platform of the Trudeau government during the 2015 election. It now appears as though Canadians will be able to legally spark it up by the end of the summer.

While the federal government is in charge of setting up the core criteria for legalizing marijuana across the country, each province is responsible for coming up with their own strategies for how consumers will actually be able to buy pot.

To meet the growing demand for marijuana, publicly traded cannabis stocks are doing what they can to be the leader in a billion-dollar industry.

Biggest Marijuana Merger Lifts Cannabis Stocks

On Monday, May 14, Aurora Cannabis Inc., (TSX/ACB) announced plans to acquire MedReleaf Corp. (TSX/LEAF) for an estimated $3.2 billion, all in stock.¹ The deal, which is expected to close in August, unites the second and fourth largest marijuana companies in Canada based on market capitalization.

The deal will enable the newly merged company to produce 570,000 kilos, or 1.26 million pounds, of cannabis a year across nine facilities in Canada and two in Denmark. It also allows Aurora Cannabis to compete head-to-head with industry leader Canopy Growth Corp. (TSX/WEED). The combined market cap of Aurora Cannabis and MedReleaf stands at more than $7.0 billion, compared to Canopy’s $6.46 billion.

Edmonton-based Aurora has facilities in Alberta, including an 800,000-square-foot facility under construction in Edmonton and a 1.2-million-square-foot facility planned for Medicine Hat.

MedReleaf meanwhile has a strong presence in Ontario, with cultivation facilities in Markham and Bradford and is looking to convert a one-million-square-foot greenhouse in Exeter. This new acquisition gives Aurora exposure to what is expected to be the largest provincial recreational market once marijuana use is legalized later this year.

Aurora has its sights set outside the Canadian market as well. Both companies have a presence in Germany and Australia; Aurora is also building a facility in Denmark with the hopes of supplying the European Union.

The next day, Aurora Cannabis announced it increased its ownership in Hempco Food and Fiber Inc. (TSX/HEMP) to 57.2%. The controlling interest in Hempco will allow Aurora to secure access to low-cost raw material for the production of CBD extracts once new legalization is in place.²

Aurora Not the Only Cannabis Company Flexing Its Muscles

Canopy Growth Corp. said that it is acquiring the remaining portions of Canopy Health Innovations (CHI) and CHI’s subsidiary Canopy Animal Health. It also announced plans to list its common shares on the New York Stock Exchange.³

National Access Cannabis Corp. (TSX/NAC) launched Meta Cannabis Supply Co., its new premium recreational brand of cannabis, on May 15. The company expects to launch an online store as well as traditional brick-and-mortar locations in various Canadian markets. This will help National Access diversify its revenue stream beyond its medical roots that includes 40 pharmacies and 11 clinics.⁴

Smaller players in the cannabis industry are also making major announcements. Organigram Holdings Inc. (TSX/OGI) said that it is now an official “licensed dealer” of marijuana. The company received a License Controlled Drugs and Substances (Dealer’s License) from Health Canada.⁵

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Marijuana stocks are not exactly a new kind of sin stock; they’ve been around for years. But with recreational marijuana expected to become legalized in Canada later this year, and a number of U.S. states already having legalized marijuana, 2018 could be the year that cannabis stocks are embraced by a much wider audience of investors. If you’re interested in cannabis stocks, or other so-called sin stocks (tobacco, alcohol, military), the trading professionals at Learn-To-Trade.com can teach you who the winners will be and which ones to avoid.

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Sources:

1. “Aurora Cannabis To Acquire Medreleaf,” Aurora Cannabis Inc. May 14, 2018; https://www.newswire.ca/news-releases/aurora-cannabis-to-acquire-medreleaf-682519231.html.
2. “Aurora takes Control of Hempco, Increasing Ownership to 52.7%,” Aurora Cannabis Inc. May 15, 2018; https://www.newswire.ca/news-releases/aurora-takes-control-of-hempco-increasing-ownership-to-527-682643811.html.
3. “Canopy Growth Announces Application To List On The NYSE,” Canopy Growth Corp. May 14, 2018; https://www.canopygrowth.com/wp-content/uploads/2018/05/20180511-Canopy-NYSE-Listing-NR-FINAL-1.pdf.
4. “NAC Launches Meta Cannabis Supply Co., a Premium Retail Cannabis Store Brand, for the Canadian Recreational Market,” National Access Cannabis Corp., May 15, 2018; https://www.newswire.ca/news-releases/nac-launches-meta-cannabis-supply-co-a-premium-retail-cannabis-store-brand-for-the-canadian-recreational-market-682645371.html.
5. “Organigram Announces Receipt of License for Controlled Drugs and Substances from Health Canada,” Organigram Holdings Inc., May 15, 2018; https://www.newswire.ca/news-releases/nac-launches-meta-cannabis-supply-co-a-premium-retail-cannabis-store-brand-for-the-canadian-recreational-market-682645371.html.

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