Catalysts are lining up for Aphria, says Clarus

The timeline to legalization of recreational marijuana continues to firm up, meaning multiple catalysts exist for Aphria (Aphria Stock Quote, Chart, News: TSXV:APH), says Clarus Securities analyst Noel Atkinson.

On Tuesday, Toronto MP Bill Blair, the federal government’d point person on legalization, visited Canopy Growth’s Bedrocan production facility in Toronto. After admitting that he was “personally skeptical” that marijuana could be produced in a safe and healthful way he said he had changed his mind about the business.

“I have come to believe it is possible for marijuana to be produced in a way that maximizes safety for Canadians,” he told the media.

Atkinson says the writing is on the wall for legalization and that Aphria is especially well positioned to benefit when the legal sale and possession of recreational marijuana in Canada begins, which he expects will happen mid-2018 to 2019.

“We currently expect a timeline of as much as 15 months after the legalization bill is introduced in the spring of 2017 until the first legal recreational marijuana sales occur (we are expecting that date to be somewhere between mid-2018 and early 2019), but LPs would likely begin to generate revenue from wholesale shipments a few months before the start date for legal retail sales of recreational marijuana,” says Atkinson. “The producers will need advance notice to be able to build facilities and ramp production to serve an estimated annual demand of more than 1 million kg of recreational marijuana annually that would translate to a wholesale market size in excess of $4 billion per year. We now expect the November 2016 recommendations to Parliament by the legalization task force to be sufficiently clear as to allow the LPs to add sufficient capacity to properly serve the recreational market demand on the start date for legal sale and possession of recreational marijuana.”

In a research update to clients today, Atkinson maintained his “Buy” rating and one-year price target of $2.50 on Aphria.