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Marijuana stocks in Canada have suffered a rift in recent weeks. But at the same time Aphria Inc. (NASDAQOTH: APHQF) and Aurora Cannabis Inc. (NASDAQOTH: ACBFF) have skyrocketed over the past month, both stocks are still below their levels in early 2018.
Aphria stocks have performed better than Aurora so far this year and in recent weeks. But is Aphria the best choice now, or is Aurora ready to surpass her rival?
There are three main things to consider when comparing Canadian marijuana stocks. The first is the ability of each company to position itself in the recreational cannabis market that will open in Canada next month. The second is the ability of each company to position itself in the global medical cannabis market. And the third is the comparison between stock valuations. Here's what you need to know about how Aphria and Aurora Cannabis compare in these three key areas.
Source of the image: Getty Images.
Canadian market for recreational cannabis
The two main keys to success in the Canadian recreational cannabis market will be production capacity and distribution channels. Aphria can currently produce only 35,000 kilograms a year. However, the company is expected to have an annual production capacity of 255,000 kilograms next year.
Aurora Cannabis expects to be able to produce 140,000 kilograms by the end of 2018. By the end of next year, the company's annual production capacity will increase to more than 570,000 kilograms.
But what about distribution channels? Aphria has teamed with Great North Distributors, a subsidiary of the largest distributor of wines and spirits in North America, Southern Glazer & # 39; s. Great North will be the exclusive distributor of Aphria's recreational cannabis products in Canada. Aphria has also signed supply agreements for the recreational cannabis market with eight Canadian provinces and territories.
Aurora Cannabis partners with a large chain of Canadian liquor stores alcanna open cannabis retail stores in provinces and territories that have finalized their retail regulations. As part of the transaction, Aurora made a significant investment in Alcanna. Along with Aphria, Aurora has also entered into several supply agreements with Canadian provinces and territories.
One of the strengths of the recreational cannabis market for Aphria and Aurora Cannabis is the potential of partnering with a major alcohol company to develop cannabis-infused beverages. Corona Beer Dispenser Constellation Brands recently invested $ 4 billion in Canopy growth. Diageo, known for products like Crown Royal whiskey and Guinness beer, would be in discussion with several Canadian marijuana growers about a partnership. Aphria and Aurora could be among the best candidates for landing a great partner.
Global market for medical cannabis
The acquisition by Aphria of Nuuvera earlier this year has allowed the company to gain foothold in several international medical cannabis markets. The most important of these markets is Germany, which has legalized medical cannabis in 2017. Aphria CEO, Vic Neufeld, said last month that he felt "very confident "about Aphria's chances of success in the German market. Until now, international sales of Aphria have been minimal.
Aurora Cannabis also seems well positioned in Germany with its subsidiary Pedanios. The company reported European revenues of over C $ 2.3 million in the quarter ended March 31, 2018. The Aurora production plant in Denmark is expected to give it an edge as measure of the opening of the European markets. In addition, the company is seeking to increase sales in other international markets, including Australia and Brazil.
Evaluation
Aphria's market capitalization of approximately $ 3.2 billion is well below Aurora's $ 5.9 billion market capitalization. Based on the price / sales ratio of each stock, Aphria is more valued than Aurora. However, both actions seem to be absurdly expensive when one examines a commonly used evaluation metric.
Another way to compare these two stocks is the "bang for the buck" method – calculate how much you pay for each kilogram of production capacity. At Aphria's current market capitalization, investors would pay approximately $ 12,549 per kilogram of capacity expected in 2019. For Aurora, this figure is $ 10,439 per kilogram of projected capacity in 2019 using current market capitalization.
However, it is better to use company value rather than market capitalization with this approach. Business value factors in cash, short-term investments and debt. Using the company values for each stock, you would pay about the same amount per kilogram for Aphria as we saw in the previous figure. However, as Aurora's business value of $ 3.76 billion is much lower than its market capitalization, you would pay about $ 6,597 per kilogram of capacity planned for 2019.
Better buy
Aphria and Aurora Cannabis are expected to be big winners in the Canadian recreational cannabis market. I think Aurora's biggest production capability could give it an edge. Aurora also seems to be better positioned for the global medical cannabis market. The Danish factory of the company and the rapid growth of its sales in Germany give it an advantage.
There is one case for the two stocks for which the valuation is the most attractive. The truth, of course, is that neither Aphria nor Aurora Cannabis are valued attractively. However, I think Aurora clearly wins using the "bang for the buck" approach.
In my opinion, Aurora Cannabis is the best stock right now, despite its lower performance than Aphria. However, the dynamics could change significantly if Diageo or another large company chooses Aphria instead of Aurora. The best buy of today might not be the best buy of tomorrow in the ever evolving cannabis industry.
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