Canada Legalizes Cannabis: Top 3 Stocks to Watch

This could open the floodgates of opportunity in marijuana stocks.

In late June 2018, the Canadian Senate overwhelmingly passed Bill C-45, also known as the Cannabis Act, which legalized the use of recreational marijuana.  While it’ll now take Canadian provinces another eight to 12 weeks to prepare for likely demand, the support opened a sizable market for the country.

Canada could see millions, if not billions in sales.

And by 2021 analysts say Canada could have nearly four million recreational marijuana users, creating a monstrous $4.5 billion industry. The industry could balloon to $8.7 billion shortly after, as marijuana retail sales just in Canada are likely to surpass beer, wine and spirit sales combined. That’s big money.

Plus, consider, this. Canadians are among the world's largest consumers of cannabis. A study by the national agency for statistics estimates that Canadians consumed 698 tons of marijuana just in 2015.

In short, approval could set off another boom. 

"This is a multibillion-dollar industry going from black to white," says Vahan Ajamian, an analyst with Beacon Securities in Toronto. "It's like the end of alcohol prohibition in the US. It's a once in a generation kind of investment opportunity."

Even fears of a supply-demand imbalance are likely to fuel higher valuations for related marijuana stocks. Business Insider recently noted, “There’s [a] potentially crippling shortage of marijuana in Canada.” 

Initially, Canada is expected to face a pot shortage. Despite capacity expansion by the country's growers, most growers have staggered completion dates for their key projects that range between the summer of 2018 and the end of 2020.

Some of the biggest stocks to keep an eye on include:

Canopy Growth (NYSE:CGC)

At the moment, CGC operates facilities with more than 2.4 million sq. ft. of growing space. However, it is expanding operations to include more than five million sq. ft. o additional space by 2019. The company also has supply agreements in place for recreational marijuana with retail sites established in Saskatchewan and Newfoundland and Labrador. 

No wonder the stock ran from $20 to $36 between April 2018 and June 2018.

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Aphria Inc. (APHQF)

With recent partnerships, supply agreements, and acquisitions, APHQF could become Canada’s third biggest supplier with annual production of 230,000 kilograms. Given the expected demand in Canada, the stock could be one of the most explosive.  One of its acquisitions was Nuuvera for $670 million, which will help to expand APHQF’s international presence to 11 countries. 

Even more impressive, the company just entered into an agreement with about 1,300 Shopper Drug Marts in Canada to be their licensed medical cannabis supplier. 

The stock has run from $7.50 to $10 between May 2018 and June 2018.

MedReleaf Corporation (MEDFF)

MedReleaf Corp. produces and sells cannabis-based pharmaceutical products in Canada. It offers dried cannabis, cannabis oils, and cannabis oil capsules; and various accessories, including grinders, vaporizers, and lockable containers. 

According to Forbes in April 2017:

MedReleaf is licensed by Health Canada to produce at its 55,000 square foot Markham Facility an aggregate of up to 6,000 kilograms of dried cannabis and up to 1,760 kilograms of cannabis oil, and to sell and distribute within Canada an aggregate of up to 5,000 kilograms of dried cannabis, up to 1,319 kilograms of bottled cannabis oil, and up to 440 kilograms of encapsulated cannabis oil. The company said that in November it became the first LP authorized to sell cannabis oil capsules in Canada. The Company also recently obtained a cultivation license for Bradford Facility, permitting the cultivation of up to 100 kilograms of dried cannabis, of which it may sell or provide up to three kilograms, solely for the purpose of analytical testing.

It also just entered into an agreement to acquire one million square feet of existing greenhouse infrastructure on a 69-acre property in Ontario, and 95 acres of adjacent land for $21.5 million in cash and 224,083 common share of its stock. 

Even more impressive, the company claims a solid share of an explosive medical marijuana market in Canada. Right now, it has 17% market share of dried cannabis in Canada. And two, on further news of legalization, the company could see a tremendous growth opportunity, as analysts forecast the market to triple in size to $1.3 billion by 2024.

The stock ran from $12 to $24 between April 2018 and June 2018.

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