During the last quarter, the Canadian cannabis sector has come under the microscope of the investment community and the market is analyzing the long-term viability of several key Canadian operators.
Over the next year, we expect to see further consolidation in the Canadian cannabis industry. We also expect to see an increase in the number of companies that are filing for bankruptcy and believe that the industry is reaching an inflection point.
Selectivity has never been more important than it is today in the cannabis industry and we tend to prefer companies that meet specific criteria. Today, we want to highlight 3 Canadian Licensed Producers (LPs) that have reported significant developments over the last quarter and believe that these are operators to be aware of.
Will Cannabis Beverages Turn the HEXO Story Around?
Last month, HEXO Corporation (HEXO.TO) (HEXO) made headlines after it reported to have advanced the strategic relationship that it has with Molson Coors (TAP.CN). The companies formed Truss Beverage Co. and introduced 5 cannabis beverage brands to the Canadian cannabis market.
Truss’ cannabis beverage portfolio includes a variety of CBD and THC products that are full of natural flavors and we are favorable on the diversity of the product line. Going forward, Truss plans to rollout one of the widest cannabis beverage portfolios to the Canadian market and we will monitor how the partnership is able to execute on a coast-to-coast growth strategy.
According to a new study from Truss Beverage, 71% of Canadians of legal age cite smoking as the primary barrier to consuming cannabis, with 74% saying the smell of cannabis on their clothing is an issue (based on the Cannabis Culture Report 2020: Cannabis Usage & Attitudes, DIG Insights, May 2020).
During the last year, HEXO has been under substantial pressure and we believe that the relationship with Coors could prove to be the catalyst that the Canadian cannabis producer needed. We believe that the relationship with Molson Coors is a key pillar of the HEXO opportunity and will monitor how it benefits both businesses over the long-term.
Aurora Cannabis: Appoints New CEO after US CBD Acquisition
2020 has been a roller coaster for Aurora Cannabis Inc. (ACB.TO) (ACB) and we believe that analysts are starting to question its ability to survive the current market environment. From the closing of facilities to divesting previously acquired assets, the last twelve months have been challenging for the Canadian cannabis producer.
A few months ago, Aurora Cannabis announced the acquisition of Reliva, a hemp-derived CBD product company in the US. The transaction includes a potential earn-out that is structured to align risk and reward between Aurora shareholders and Reliva management to focus on continued strong operational and financial execution.
When the deal was announced, Aurora Cannabis reported that it expects the transaction to be immediately accretive on an adjusted EBITDA basis and we will monitor how the acquisition supports the growth of the business. We continue to be cautiously optimistic with the CBD market due to the saturation of the industry and hope that Aurora knew what it was doing when it announced the deal.
Following the acquisition, Aurora Cannabis appointed Miguel Martin as CEO and we will monitor how he is able to drive the story forward. With Martin as CEO, Aurora Cannabis plans to execute a tactical growth strategy that is intended to grow Aurora’s leading market share in key profitable Canadian consumer categories, protect and enhance Aurora’s leading market share in Canadian medical cannabis, grow the international medical business, and build leading brands under Reliva in the US CBD market.
We continue to be cautiously optimistic with Aurora Cannabis and will monitor how the management team is able to cut costs and grow revenues. The name of the game for Aurora Cannabis is execution and we will be closely following the story from here.
Canopy Growth: Trying to Increase Market Share
Last year, Canopy Growth Corporation (WEED.TO) (CGC) was considered to be the leading player in the Canadian and in the global cannabis market. A lot has changed in the last year and the company is working to optimize the business through strategic growth projects and cost cutting initiatives.
In 2019, Canopy Growth announced the firing of Bruce Linton as its CEO and Chairman. Following the firing of Bruce, Canopy Growth announced the closure of several cultivation facilities and recorded a $743 million impairment charge in the fourth quarter. These developments represent a major change in strategy for the cannabis producer and we will monitor how it benefits the business over the long-term.
During the last few months, several broker-dealers downgraded and lowered price targets on Canopy Growth and we find this to be of significance. In the most recent quarter, Canopy Growth recorded a $1.3 billion net loss and this number was much higher than what analysts were forecasting.
Although the last few months have been challenging for the Canadian cannabis producer, the business has a bright future. With almost $2 billion of cash on the balance sheet, Canopy Growth is well positioned to survive a prolonged downturn, and this is an opportunity that we will continue to closely monitor.