A war is raging within the confines of America’s northern neighbor, Canada. A marijuana war. Canada’s decision to legalize recreational marijuana use among adults last year sparked a flood of licensing applications to Health Canada to grow, sell, and perform research on cannabis. At the end of 2018, for example, the agency reported a whopping 132 companies with licenses already in hand to cultivate marijuana and several hundred more applications currently under review.
Legal weed growers, however, aren’t just battling against one another for market share. Canada has long had a prolific black market for cannabis, and the country’s move to decriminalize weed has so far failed to stamp out underground weed operations. Many provinces even have illegal storefronts that offer a broad spectrum of products, including hundreds of varieties of dried flowers, a cornucopia of edibles, and even bath bombs. While these illegal brick-and-mortar stores were supposed to be phased out ahead of legalization, a number of logistical issues — along with customer dissatisfaction with legal stores — has kept them in business.
Not only are illicit growers and distributors selling a more diverse range of products at the moment (legal operations are currently restricted to dried flowers, seeds, and oils), black market cannabis products are generally cheaper than legal varieties as well. Canadian cannabis companies operating on the legal side of the industry, therefore, face numerous hurdles when it comes to…
simply surviving in this exceedingly competitive and highly fragmented environment. In fact, top industry insiders believe there will only be a few select winners among the present crop of legal cannabis entities.
What does this all mean for investors? The brutal truth is that investors interested in this ultra-high-growth industry won’t be able to simply pick a name from a hat and expect a rising tide phenomenon to carry them over the goal line. Instead, investors will need to carefully comb over the present cohort of publicly traded marijuana companies in order to identify stocks capable of delivering the goods, so to speak.
Keeping with this theme, the top Canadian pot companies Aurora Cannabis (TSX:ACB)(NYSE:ACB) and Tilray (NASDAQ:TLRY) both appear to have the resources necessary to survive the initial growing pains of this nascent industry. However, only one of these companies is well positioned to actually thrive in this highly competitive environment. Read on to fund out more.
The case for Aurora
Aurora has executed a jaw-dropping 15 acquisitions since the start of 2016. This hyperaggressive growth strategy has put the company on track to become the largest marijuana grower in Canada within the next few years and it has given the company a strong foothold in key emerging markets like Europe and Latin American.
As things stand now, Aurora has enough production capacity to supply an astronomical 87.5% of Canada’s legal cannabis market, showing that the company can easily service both its domestic market, as well as…
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