The countdown is officially on for recreational marijuana in Canada, with licensed producers like Aurora Cannabis (TSX:ACB) now gearing up in earnest for the October 17 start date.
One of the biggest players in the space, Aurora now has funded capacity for a massive 430,000 kg annually of dried cannabis. Will all of that production turn into big profits for Aurora? Not likely, says Elliott Fishman of Scotia Wealth, who claims that margins on marijuana crops could be a lot thinner than advertised.
Last week, Canada became the first G7 country and just the second state in the world to legalize marijuana when Parliament passed Bill C-45, the Cannabis Act, and the sitting Liberal government determined that Oct. 17 would be the date when the shops open.
“The granting of Royal Assent today ends nearly a century of cannabis prohibition, marking a truly historic moment for all Canada, for Canadian public policy, and for this country’s cannabis sector,” said Terry Booth, Aurora CEO, last Thursday in a press release.
“With production at our facilities, including Aurora Sky, ramping up very rapidly, we look forward to providing this large and exciting market with an excellent portfolio of Aurora Standard products, ensuring unique user experiences to a new group of customers from October 17, 2018 onwards,” he said.
Aurora stands as the most splashy of Canada’s pot companies when it comes to big deals, having announced in January a $1.2 billion acquisition of CanniMed Therapeutics, followed up by a $3.2 billion deal for MedReleaf in May. On Tuesday, the company announced a big financing round, as well, one which will see BMO provide Aurora with a $150-million term loan and a $50 million revolving credit facility, both of which will mature in 2021.
All that deal making has raised some eyebrows, with many wondering if Canada’s pot industry will live up to the hype. Probably not, says Fishman, who says that like others in the space, Aurora’s stock has been an up and down ride for investors.
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“It’s this whole volatile game currently without any real reason for it to be so volatile,” he told BNN Bloomberg. “The only thing I’m concerned about is after everybody starts taking their cut as they start selling it legally and who knows what their actual margins are going to be — they may be very, very tight.”
ACB hit a record high of $15.20 back in January but then dropped to the $8.00 range for much of the ensuing months. Since the start of June, however, Aurora’s share price is up 19 per cent.
“This stock originally popped up like everybody’s going to be doing marijuana of some sort. It’s settled back down again, but I really don’t see the reason for this volatility,” says Fishman.
“It’s really not in the game yet. I need to wait and see. At this stage, it’s just the hype, so there’s no reason not to own it,” he says.