Canadian Cannabis Stocks: A Wave of Consolidation

Canada’s third-largest cannabis stock just made a big acquisition.
It’s the latest sign that the Canadian cannabis land grab continues to ramp up – handing early investors huge profits.
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Aphria (TSE: APH) just paid $217 million to acquire a British Columbia cannabis producer named Broken Coast Cannabis.
Broken Coast is a small private licensed cannabis producer with a current capacity of 4,500 kg per year. It’s one of 18 licensed producers in British Columbia, having received a license four years ago.
Financial details for Broken Coast were not released. But let’s optimistically assume that the facility is running at 100% of capacity. And the price of cannabis is $8.50 per gram. That means the current annual production would be worth around $38 million annually.
The $217 million acquisition is paid 100% in stock, thereby diluting Aphria shares. The price tag is impressive for a small acquisition.
With the acquisition, Apria plans to increase the Broken Coast production to 10,500 kg annually. That will help boost Aphria’s total cannabis production to 230,000 kg – an increase of less than 5%.

Canadian Cannabis Stocks: Consolidation

This acquisition is the latest sign that the major cannabis companies are trying to secure their financial viability.
Health Canada has currently issued 89 production licenses to Canadian companies. That compares with over 1,630 applicants.
At this point, there are a few dominant players . . . and dozens of tiny cannabis startups producing 1,000 to 5,000 kg annually.
Like any new sector, the promise of rapid growth is attracting entrepreneurs and capital. However, as the industry matures, we’re starting to see the early signs of consolidation.
That means we can expect increased merger and acquisition activity in 2018.
It’s already happening. Alcohol and tobacco companies are buying up equity stakes in private and publicly traded Canadian cannabis stocks. Plus, the major Canadian companies are rolling up the smaller players.
Investors who jump onboard could stand to earn 100% to 300% profits BEFORE recreational cannabis in Canada goes live on July 1.
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