3 Cannabis stocks that are on the move

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This is a weird week for the stock market as Canada celebrated Canada Day on Monday and the United States celebrates Independence today.

Although many investors are on a holiday, these companies continue to execute and are taking no time off. Today, we have highlighted three company updates that cannabis investors need to be aware of. These represent Canadian and United States focused opportunities and are ones that we are favorable on.

Aurora Cannabis: Issues Positive Operational Update

Over the last year, Aurora Cannabis Inc. (ACB.TO) (ACBFF) has executed flawlessly, emerging as one of the only companies able to rival Canopy Growth (WEED.TO) (CGC). Yesterday, Aurora released an operational update that provided important and relevant information for investors. This updated included some significant announcement such as

  • On June 29th, the Aurora Vie facility (Quebec) was granted a sales license and is in full commercial operation and on target to be able to produce 4,000 kg a year by October. Multiple harvests have been completed and the required modifications for the softgel manufacturing facility are materially complete.
  • Aurora Sky completed its The first harvest in late June and is on track to be fully operational in late summer. Aurora anticipates planting of all bays in the coming months, ensuring ample dried flower and extracted product supply in advance of consumer legalization in October, with the facility ramping up to full capacity of more than 8,000 kg each month by the beginning of 2019.
  • CanniMed received Health Canada approval to commence sales of CanniMed Capsules, a line of vegan capsules, the first of which will be available in August. Aurora received its Health Canada license for the production of encapsulated oil for its Mountain facility. The company will be producing unique, integral hard shells for the medical markets, as well as for the adult consumer use market, once legalized.
  • Aurora Larssen Projects broke ground on the Aurora Sun facility in Alberta, the company’s second EU GMP facility. Aurora Sun is currently slated to be 50% larger than Aurora Sky, at 1.2 million sq. ft., and is expected to be able to produce more than 150,000 kg of cannabis per year.
  • The integration of CanniMed into Aurora has now been successfully completed and the program will support the integration of future acquisitions. The integration team is implementing enhancements to CanniMed’s extraction operations and management expects this to substantially increase oil production. The integration process has also enabled the company to leverage unused licensed space to support the development and delivery of new product forms in addition to the recently announced launch of a topical cream and the CanniMed capsules.

MedMen: A Leading United States Cannabis Play

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In early June, we visited several MedMen Enterprises Inc. (MMEN.CN) (MMNFF) dispensaries in Los Angeles and we very impressed at the traffic at these locations. The dispensary locations are money printing machines. The staff is very knowledgeable on the wide variety of products offered at the store and this makes it easy to find the products that you need.

MedMen is in the middle of a major expansion and is well capitalized after completing an initial public offering on Canadian Stock Exchange in June. MedMen is focused on high-growth markets like California, Nevada, New York, and Florida, which is a very attractive aspect of the story. The company has been making acquisitions and has been using its stock as a currency. We expect these acquisitions to prove to be accretive and are favorable on the recent moves.

Yesterday, MedMen completed the first harvest at its cultivation and production facility outside Reno, Nevada. The test crop was only a fraction of the facility’s 10,000 pounds planned annual production capacity, but it went very smoothly and all systems functioned as designed, according to Dan McClure, MedMen’s vice president of agronomy.

With the facility completed and operational, MedMen plans to build the same type of facility in the other states where it operates. Earlier this year, construction began in Desert Hot Springs, California, and is expected to be completed in the first quarter of 2019. Another factory is planned for MedMen’s Utica facility in New York. The same factory design is planned for Florida.

We consider MedMen to be a long-term opportunity and are also favorable on Green Thumb Industries (GTII.CN) (GTBIF), Liberty Health Sciences (LHS.CN) (LHSIF), iAnthus Capital Holdings (IAN.CN) (ITHUF) and MPX Bioceuticals (MPX.CN) (MPXEF).

CannaRoyalty: A California Cannabis Opportunity

CannaRoyalty (CRZ.CN) (CNNRF) has been laser focused on the California cannabis market and we are bullish on this opportunity. Yesterday, the company closed the previously announced acquisition of FloraCal Farms, a licensed premium craft cannabis producer located in Sonoma County, California. This is a significant acquisition and enhances of CannaRoyalt’s portfolio of California cannabis assets.

FloraCal has a leading position in the California market, with THC numbers testing up to 33% and a selling price of up to $17.00 per gram. This demonstrates that even in a relatively mature flower market, craft branded flower is able to capture and maintain premium prices and margins. Management expects to bring the brand to new heights through increased production and an elite distribution platform. Since retailers can only carry compliant cannabis products, the market may see a short-term supply disruption.

FloraCal has a temporary medium indoor cultivation license from California, as well a Type 6 non-volatile manufacturing permit in Sonoma County. FloraCal is building its Sonoma County facility in three Phases and has been designed to comply with cGMP standards.

  • Phase I is licensed and in commercial production, with 15,000 sq. ft. of purpose-built indoor growing in a 64,200 sq. ft. facility.
  • Phase II has been licensed and will increase the facility to 42,200 sq. ft. and targeted annual production of 3,700 kg, with construction expected to be completed by Q1 2019.
  • Phase III would further expand the facility to 64,200 square feet, with targeted annual production of 5,500 kg.
  • Capital cost for construction during Phase I and II is estimated to be $7.5 million (Phase III has an anticipated budget of $4MM for construction).

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