Three cannabis producers that should definitely be on Diageo’s short list.
Get ready for round three of the dating game. Constellation Brands chose Canopy Growth as its cannabis partner. Molson Coors Brewing selected The Hydropothecary. Now it looks like another major alcoholic beverage company is in search of a Canadian marijuana partner.
BNN Bloomberg reported late last week that U.K.-based beverage company Diageo plc(NYSE:DEO), the maker of Guinness beer and Smirnoff vodka, has been in talks with at least three Canadian marijuana growers. No firm details are available at this point. However, several stocks of cannabis producers have soared on speculation that they could be the next to snag a deal.
Which marijuana partner will Diageo actually pick? There’s no way to know for sure. My view, though, is that the top three candidates the company should be looking at closely are Aphria(NASDAQOTH:APHQF), Tilray (NASDAQ:TLRY), and Aurora Cannabis(NASDAQOTH:ACBFF). Here’s why…
1. Aphria
Over a week ago, I ranked Aphria as No. 3 on the list to follow in Canopy Growth’s footsteps in partnering with a major alcoholic beverage maker. But I have Aphria at the top of the list now. What changed? For one thing, my previous ranking was based on market reaction. More importantly, though, we now know which beverage company is likely to be the next to make a deal.
There are two advantages that I think work in Aphria’s favor. One is that Diageo would get a lot of bang for its buck by investing in the company. Aphria’s market cap of $2.7 billion is well below the market caps of my other top three candidates. The company expects to have an annual production capacity of 225,000 kilograms by early 2019. Aphria claims a better price per kilogram of capacity than many of its peers.
The other advantage for Aphria is its connection with Diageo. Aphria chief commercial officer Jakob Ripshtein worked with Diageo for 10 years prior to joining Aphria earlier in 2018, serving as president of Diageo Canada for a couple of years prior to joining Aphria. You’d have to think that Ripshtein’s relationship with the Diageo management team would help Aphria in partnership discussions.
2. Tilray
Investors have driven Tilray’s stock up 84% following the announcement of the Constellation-Canopy deal. My view is that these gains are largely due to the expectation that Tilray will be a…
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