The big day is almost here. In 24 days, on Oct. 17, Canada will lift the curtain on recreational marijuana prohibition and allow adult-use cannabis to be purchased in licensed dispensaries. When the industry is fully up to scale, it should result in billions of dollars in added annual revenue. This is why investors have driven marijuana stock valuations into nosebleed territory in recent years.
However, the marijuana space remains very fluid, with acquisitions, partnerships, joint ventures, and organic grow projects constantly reshuffling production expectations. After all, when the year began, it looked as if it'd be a struggle to foresee 1 million kilograms of annual production by 2020. Now, 3 million kilograms looks to be the annual floor by the turn of the decade, in my best estimate.
What companies will be leading the charge in production? Again, while these are nothing more than educated guesses at this point -- and a lot could change depending on dealmaking, mergers, and organic project announcements -- here's a prediction for the top 10 cannabis producers by 2020.
1. Aurora Cannabis: Up to 700,000 kilograms per year
Most likely, Aurora Cannabis (NASDAQOTH: ACBFF) will be the country's largest producer by the turn of the decade. Aurora has been hell-bent on growing its capacity by any means necessary. It's undertaken organic projects that include Aurora Sky and Aurora Sun; formed partnerships, as in Aurora Nordic with Alfred Pedersen & Son; and acquired CanniMed Therapeutics and MedReleaf. With these assets under its belt, Aurora Cannabis expects to yield 570,000 kilograms annually.
But its recently announced purchase of ICC Labs, with 92,000 square feet of existing production and just over 1.1 million square feet currently under development, should allow Aurora Cannabis to bolster its potential yield to around 700,000 kilograms by 2020, in my best guess.
2. Canopy Growth Corp.: Between 500,000 kilograms and 525,000 kilograms per year
Interestingly enough, Canopy Growth Corp. (NYSE: CGC) has been quite secretive regarding its peak production potential. What we know right now is that it has 2.4 million square feet of licensed capacity in British Columbia, and it's on track to have 5.6 million square feet licensed when all is said and done. The wild card is we don't know exactly what sort of yield Canopy Growth is getting on its square footage. My suspicion is that it's close to 100,000 kilograms per 1 million square feet, which is why I'm estimating in the neighborhood of, or just above, 500,000 kilograms per year.
3. Aphria: Around 255,000 kilograms per year
Chances are that Ontario-based Aphria (NASDAQOTH: APHQF) will hang onto its spot as the nation's No. 3 grower with an estimated 255,000 kilograms of cannabis-equivalent production. Most of Aphria's yield derives from its four-phase organic project known as Aphria One (100,000 kilograms) and its partnership with Double Diamond Farms known as Aphria Diamond (120,000 kilograms). The remainder should come from an extraction center that's currently being built and estimated to yield 25,000 kilograms of cannabis-equivalent concentrates each year, and Broken Coast Cannabis, which was purchased in January 2018.
4. Tilray: Between 200,000 kilograms and 225,000 kilograms per year
There's perhaps no bigger wild card on this list than Tilray (NASDAQ: TLRY), which went public about two months ago. Tilray's S-1 prospectus filing with the Securities and Exchange Commission estimated that 912,000 square feet, including over 850,000 square feet of growing space, would be complete by the end of 2018. However, it's sitting on around 3.8 million aggregate square feet of expansion potential. My suspicion is that it'll develop a good portion of this land, but perhaps not all of it, by the turn of the decade. Rife with cash from its initial public offering and a Series A funding prior to its IPO, capacity expansion -- and a push to perhaps 200,000 kilograms in annual production -- seems likely in my view.
5. The Green Organic Dutchman: Around 195,000 kilograms per year
Taken at face value, The Green Organic Dutchman (NASDAQOTH: TGODF) is estimated by its management team to hit 195,000 kilograms of annual production when at peak capacity. This includes its Ontario and Quebec properties, which will contribute 14,000 kilograms and 102,000 kilograms, respectively, as well as 40,000 kilograms from a 287,245-square-foot facility on its Valleyfield property that'll be devoted to its beverage division (once infused beverages are legalized in Canada).
Admittedly, it could be tough for The Green Organic Dutchman to hit estimates given that production is beginning so late relative to its peers. But if it can hit its production goals, it may find itself as a top five producer.
6. Cronos Group: Between 135,000 kilograms and 150,000 kilograms per year
Cronos Group (NASDAQ: CRON) is another tough cookie to figure out. Its wholly owned Peace Naturals looks to produce in the neighborhood of 40,000 kilograms, with other wholly and partially owned assets chipping in as well.
More recently, it formed a joint venture (Cronos GrowCo.) with a group of investors that'll see an 850,000-square-foot facility constructed that, when complete, should yield roughly 70,000 kilograms a year. Depending on Peace Naturals' and Original BC's peak capacity, Cronos Group could be looking at anywhere from 135,000 kilograms to 150,000 kilograms in annual yield at full operation, in my opinion.
7. OrganiGram Holdings: Around 113,000 kilograms per year
Atlantic-based OrganiGram Holdings (NASDAQOTH: OGRMF) is projected to generate 113,000 kilograms when at full capacity. Aside from the rarity of being an Atlantic-based grower (most are located in British Columbia, Ontario, or Quebec), OrganiGram is also making exceptionally smart usage of its space. Its grow facility in Moncton, New Brunswick, only spans 480,000 square feet, yet its three-tiered growing system optimizes the use of its space, as well as minimizes cost. This low-cost, high-yield, data-driven production should lock in OrganiGram as a top 10 producer by 2020.
8. HEXO Corp.: Around 108,000 kilograms per year
HEXO Corp., which was formerly known as Hydropothecary, will likely sneak into a top 10 producing position with an estimated 108,000 kilograms of peak production, per management. Already working with approximately 310,000 square feet of capacity at its Gatineau, Quebec, facility, the company announced a 1-million-square-foot expansion on 78 acres of property adjacent to its Gatineau facility in December 2017. With this expansion expected to be complete by this upcoming December, HEXO, which has a huge supply deal with Quebec that'll total 200,000 kilograms over five years, looks to be on target to reach 100,000-plus kilograms of production annually.
9. CannTrust Holdings: Between 105,000 kilograms and 110,000 kilograms per year
The management of CannTrust Holdings, one of the cheaper pot stocks investors can buy, simply expects production to be "in excess of 100,000 kilograms" when its Niagara Greenhouse facility expansion is complete. It recently waved the green flag on 450,000 square feet at its Perpetual Harvest Facility, and is expanding to more than 1 million square feet overall. CannTrust's use of hydroponics and moving containerized benches may allow for steadier production, lower growing costs, and higher yields than its peers. I suspect up to 110,000 kilograms of annual production may be within reach.
10. Emerald Health Therapeutics: Between 100,000 kilograms and 110,000 kilograms per year
Finally, Emerald Health Therapeutics could round out the top 10 producers by the turn of the decade. Emerald Health formed a joint venture with Village Farms International to retrofit 1.1 million square feet of vegetable-growing greenhouse space for cannabis production. When at peak capacity in 2020, it should yield 75,000 kilograms a year. Emerald Health also has its Metro Vancouver grow space, which I suspect could tack on enough to get it to 100,000 kilograms of production (inclusive of its Pure Sunfarms joint venture).
The unknown here is whether Pure Sunfarms will use the 3.7 million square feet of adjacent property to further expand capacity. Though it could take until beyond 2020 to complete, Emerald Health Therapeutics has an opportunity to perhaps be a top five producer if that happens.
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