Marijuana Stock Report: What’s The Deal With Aphria and Molson?
The North American Marijuana Index held flat on Wednesday with pot stocks inching upwards following market speculation from earlier this week that Aphria and Molson may be working out a deal. Aphria Inc. (TSE:APH) (OTCMKTS:APHQF) announced Monday they would delay reporting of the company’s fourth-quarter 2018 earnings release until August, with analysts speculating the company is trying to be in synch with Molson Coors Brewing (NYSE:TAP) second-quarter earnings release. In fact, both releases are now scheduled for the same day.
The Index rose 0.01 points, or 0.00 percent, to finish out the day at 211.69, with the United States Marijuana Index rising 0.43 percent and the Canadian Marijuana Index gaining 0.26 percent.
It could be that Aphria is simply rescheduling their earnings releases going forward. After all, the company is large, valued at nearly $3 billion, so this recalibration is not uncommon of companies its size.
However, the explanation could be more complex. The sector has experienced rampant rumors recently about a possible Aphria-Molson Coors merger. It’s no secret that alcohol companies want to enter the cannabis market. Molson is the second-largest beer seller in the U.S. and Canada, and with Canada’s recent law legalizing marijuana, Molson wants to court cannabis players like Aphria as well Aurora. News broke in late June that Molson was in serious talks with several Canadian-based cannabis companies regarding cannabis-infused beverages. Molson’s worldwide sales have been dropping, and a new beverage line could give them the boost they need.
Fast forward to August 1, and the timing just might be right for the two companies to announce a wider partnership, and release their quarterly earnings reports at the same time.
A Perfect Match?
Aphria shares continue to underperform compared to Canopy Growth (OTC:CGC), Aurora Cannabis (OTCQX:ACBFF), and the Horizons Marijuana ETF (OTC:HMLSF). Meanwhile, Aurora is still smarting from its acquisition of MedReleaf Corp. (OTCPK:MEDFF) while Canopy is recovering from its 2018 losses —with shares approaching an all-time high. So far in 2018, Aphria has lost 37 percent, making it one of the worst performing large-cap stocks.
Molson may be hanging in for the long haul, with Aphria well positioned for it. A month ago, Aphria announced a $225 million bought-deal financing, with proceeds going to its new extraction facility. That investment should lead to better profit margins. Add to the mix a line of value-added products like cannabis-infused beverages, and that business model could produce even higher margins.
Indeed, Aphria is in a build-out mode to maximize their facility capacity and production capacity as well. By next year, they’ll be the third largest producer, and they are one of only four Canadian cannabis companies worth over $1 billion. An August 1 partnership announcement could put both companies in a prime spot to be ready for recreational cannabis sales in Canada, which start October 17.
A Huge Upside
Will Molson make a sizeable investment in Aphria? Maybe they will, following the lead of Canopy Growth and its big investor, Constellation Brands, maker of Corona beer.
Why are Aphria and Molson such a good match? There are several reasons why:
- Aphria has the scale of business and production facilities that Molson needs.
- Molson can rely on Aphria to supply on a large scale and match Molson’s production capacity
- Aphria just raised $225 million, which had to make Molson take notice about the company’s access to capital markets
- Experts agree that Aphria has a great management team, very experienced in the industry
Does Molson agree? Or does Molson just see the negatives of Aphria? Will Molson look towards Aphria or start courting other Canadian cannabis big players? Maybe investors will have to wait until August to find out. One thing is expected—if Molson does partner with Aphria, it is likely the positive boost that Aphria stock needs right about now.
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On The Markets
Meanwhile, on Wall Street, stocks fell, breaking a four-day winning streak, as trade-war fears dipped upwards again following President Donald Trump’s threat to hit China with an additional $200 billion worth of tariffs on goods. Unsurprisingly, China vowed to fight back, accusing the U.S. of bullying. However, experts say that trade war fears may take a back seat to second-quarter earnings reports in the coming weeks, with investors looking towards numbers from big banks on Friday.
"The trade situation is worrisome but nothing more is going to happen right away. This story may recede in people's consciousness while current stories capture people's interests, particularly earnings," said John Carey, portfolio manager at Amundi Pioneer Asset Management in an interview with Reuters.
"People are looking for some fairly strong earnings, and there's certainly potential for disappointment."
The Dow Jones Industrial Average fell 219.21 points, or 0.88 percent, to end the day at 24,700.45, while the S&P 500 lost 19.82 points, or 0.71 percent, to close out the day at 2,774.02. Finally, the Nasdaq Composite fell 42.59 points, or 0.55 percent, to end Wednesday at 7,716.61.
The Horizons Marijuana Life Sciences ETF (HMMJ.TO) showed no movement on Wednesday, closing out again at CAD$18.20, while the Evolve Marijuana ETF (SEED.TO) fell CAD$0.20 per share, or 1.18 percent to close out the day at CAD$16.71.
Maricann Group Inc. (CSE:MARI) (OTCQB:MRRCF) entered an MOU with the BC Liquor Distribution Branch to supply medical cannabis… The Supreme Cannabis Company, Inc. (TSXV:FIRE) did the same… In fact, 31 LPs signed a deal with them.
The Cannabis Market For Pets Is Heating Up
A report from 680News shows how the cannabis market for pets is taking off, with the industry expected to take in somewhere near $7 billion once marijuana becomes legal in Canada. For more on this story, check out the clip below:
*Photo Credit: By Cossette.phil [CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0)], from Wikimedia Commons