HEXO's Acquisition Shakes Up the Top 11 Marijuana Growers List
If you're looking for one of the fastest-growing industries on the planet, you've found it with legal marijuana. It has generated less than $10 billion in annual sales worldwide in 2017, but investment bank Cowen Group is calling for up to $75 billion in global sales by 2030. For those of you keeping score at home, that's a compound annual growth rate of about 17% for 13 years.
Because the industry is still relatively nascent, it means there's a lot of market share up for grabs on the recreational and medical side of the equation. This has meant that growers have been particularly aggressive expanding their production capacity organically, through partnerships, or by acquisition.
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There's been a shake-up among the largest cannabis growers
Last week, just a day prior to releasing its highly anticipated second-quarter operating results, Quebec-based HEXO (NYSEMKT: HEXO) dipped its toes into the water with an acquisition of its own. The announced deal will have HEXO paying 263 million Canadian dollars (about $197 million) to acquire Ontario's Newstrike Brands. The all-stock deal will allow HEXO to further cement domestic supply deals with Canadian provinces, lead to $10 million in annual cost synergies, and, most importantly, add 470,000 square feet of production capacity to the more than 1.3 million square feet of cultivation space the company already has.
Ultimately, HEXO's acquisition completely reshapes the look of the 11 marijuana growers currently on pace for more than 100,000 kilograms in peak annual output. Here's the old list for reference; and here's updated list:
1. Aurora Cannabis: 700,000 kilos
As should be no surprise, Aurora Cannabis (NYSE: ACB) continues to retain its title as the top dog in terms of production. Although Aurora's management team is projecting more than 500,000 kilos in annual run-rate production by midyear 2020, it's probably being conservative. Aurora's purchase of ICC Labs in South America, along with the eventual commencement of production at Aurora Sun, Aurora Nordic 2, and Exeter, should really ramp up output, eventually pushing it to something closer to 700,000 kilos per year.
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2. Canopy Growth: >500,000 kilos
Unlike most top-tier pot growers, Canopy Growth (NYSE: CGC) has been somewhat secretive about its peak production. However, Canopy has indicated that more than 4.3 million square feet of its 5.6 million square feet in cultivation space spanning 10 facilities is already licensed by Health Canada. Assuming industry-average yields, Canopy Growth should have no trouble reaching 500,000 kilos of annual output, and may even approach 550,000 kilos.
3. Aphria: 255,000 kilos
There's a pretty big drop-off back to Aphria in the No. 3 spot at 255,000 kilos in peak production. Aphria's output is concentrated in just a few facilities, with its organic, four-phase buildout known as Aphria One contributing 110,000 kilos; its retrofit of existing greenhouses, known as Aphria Diamond, generating 140,000 kilos; and its previous acquisition of Broken Coast Cannabis adding 5,000 kilos.
4. Tilray: >200,000 kilos
With Tilray (NASDAQ: TLRY), we might as well pull a number out of a hat, because the company's management team has been less-than-forthcoming with near-to-intermediate-term output forecasts. Tilray ended 2018 with a little over 850,000 square feet devoted to cultivation domestically, and is working on almost 250,000 square feet of growing space abroad. It does, however, have 2.9 million square feet in unused land in Canada that it's yet to tell investors how it'll put to work. Thus, my expectation is that Tilray's output should at least double from the close to 100,000 kilos it might be on track for now.
5. The Green Organic Dutchman: 195,000 kilos
Although it's been a slow starter, The Green Organic Dutchman is expected to deliver 195,000 kilos per year. This includes 14,000 kilos from its fully expanded Ontario-based facility and 102,000 kilos from its flagship Valleyfield property in Quebec. TGOD, as the company is also known, is also devoting about 20% of its production to edibles and cannabis-infused beverages, which are set to become legal in Canada by this coming October.
Image source: Getty Images.
6. HEXO: 150,000 kilos
Say hello to your new sixth-largest cannabis grower, HEXO. The additional 470,000 square feet of cultivation space lifts HEXO from a previous forecast of 108,000 kilos annually to a new annual run rate of 150,000 kilos at its peak. While far from the best yield per square foot, being among Canada's growing elite should allow HEXO to build on its already impressive array of deals, which includes an aggregate 200,000 kilos to its home province of Quebec over five years, and a joint venture with Molson Coors Brewing.
7. Aleafia Health: 138,000 kilos
Even though Aleafia Health is sort of a small-fry based on its market cap, its acquisition of Emblem, which received the final OK earlier this month, will create the seventh-largest pot producer in Canada. Aside from operating 40 health clinics, which, presumably, will keep patients loyal to its homegrown brands, Aleafia Health and Emblem bring peak output of 98,000 kilos and 40,000 kilos, respectively, to the table. That's 138,000 kilos a year from a company worth about $450 million, combined.
8. Cronos Group: 120,000 kilos
Despite being one of the largest pot stocks by market cap, Cronos Group (NASDAQ: CRON) looks to be on track to scrape together only 120,000 kilos in peak annual output. Most of Cronos' production will come from an 850,000-square-foot joint venture project (70,000 kilos) that's to be completed by midyear and its wholly owned Peace Naturals subsidiary (40,000 kilos). The remaining 10,000 kilos will be derived from international grow sites in Israel and Australia, and smaller domestic cultivation facilities.
9. OrganiGram Holdings: 113,000 kilos
Atlantic-based OrganiGram Holdings (NASDAQOTH: OGRMF) is easily the most efficient grower on this list, with just 490,000 square feet of cultivation space but 113,000 kilos of expected yearly production. At 231 grams per square foot, OrganiGram's Moncton facility in New Brunswick will yield more than double the industry average per square foot. OrganiGram's use of a three-tiered growing system, which maximizes growing space, is a big reason why the company is nearly outproducing some of its much larger peers.
Image source: Getty Images.
10. CannTrust Holdings: >100,000 kilos
CannTrust Holdings' (NYSE: CTST) management team has remained adamant that peak annual output will surpass 100,000 kilos, despite some near-term permitting snafus with its flagship Niagara facility. The company's already-completed Vaughan facility and as-of-now 450,000-square-foot Niagara facility, which are both focused on hydroponic cannabis growing, should yield 50,000 kilos a year at their peak. The 390,000-square-foot addition to Niagara, along with possible future acquisitions, is what's expected to push CannTrust above 100,000 kilos.
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