3 Canadian Licensed Producers That Are Prime Acquisition Targets

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Canada’s marijuana market has been one of the hottest places to invest and this trend has shown no signs of slowing down.

Canadian licensed medical marijuana producers have been one of the biggest beneficiaries of the recent rally and capital continues to pour into this burgeoning market.

Canada’s legal marijuana market continues to expand rapidly as licensed producers are laser focused on increasing production capacity ahead of the opening of the recreational marijuana market in 2018. 

Although we have seen many marijuana producers increase production capacity through the construction of new facilities, some of the better capitalized producers are acquiring other producers to increase market share and production capacity.

We are favorable on this strategy and are not surprised by the recent developments. Over the next twelve months, we expect more acquisitions within the Canadian cannabis market as larger licensed marijuana producers acquire some of the more attractive smaller marijuana producers. 

After Aurora Cannabis (ACB.TO) (ACBFF) announced plans to make a competing bid to acquire Cannimed Therapeutics (CMED.TO) (CMMDF), we want to highlight three licensed marijuana producers that we believe are acquisition candidates.

Emblem Corp. (EMC.V) (EMMBF)

Emblem Corp. has had a rough 2017 after the company had a very successful IPO in December 2016. So far this year, shares of Emblem have fallen more than 57% and the company’s market capitalization is approx. $115 million.

Although Emblem has faced some execution issues, the company is a differentiated opportunity and would be a significant acquisition for a company focused on improving the cannabis oil side of their business. Emblem has taken a pharmaceutical approach to the medical marijuana industry and the company is in the middle of a major expansion project.

We believe that Emblem represents an attractive acquisition candidate due to the company’s valuation, its assets and Health Canada issued licenses, its differentiated business model (focused on cannabis production, education, and pharmaceuticals), and its long-term value proposition.

Organigram Holdings (OGI.V) (OGRMF)

Organigram Holdings has been one of the top performing Canadian licensed medical marijuana producers, having rallied approx. 25% in the last month. Despite this move higher, the medical marijuana producer has a market capitalization that is slightly above $350 million.

In late 2016, Organigram came under significant pressure after the company was found to be using banned pesticides during the production process. The company has bounced back from this scandal and in September, Organigram entered a memorandum of understanding with the province of New Brunswick for the distribution of marijuana to the adult-use recreational market. The agreement is for 5 million grams and should generate approx. $40 million per year from this contract.

We believe that Organigram represents an attractive acquisition candidate due to the company’s focus on producing organic medical marijuana, its improving fundamentals, its valuation, and its position within the Canadian medical marijuana market. While Organigram would be an expensive acquisition, it would be an accretive for a company that can afford them.

Maricann Group (MARI.CN) (MRRCF)

Maricann Group has been executing on its business plan and the market has taken notice. Over the last month, Maricann has rallied approx. 40% and the company’s market capitalization is $130 million after this rally.

Over the last year, Maricann has continued to execute and advance its cannabis cultivation projects in Canada and Germany. During this time, the company has completed financing agreements and secured more licenses from Health Canada.

We are favorable on Maricann’s leverage to the legal cannabis market in Canada and Germany and we consider the company to be an attractive acquisition candidate. We think the company would be attractive to any cannabis producer focused on the Canadian or Germany market and expect to see Maricann acquired over the next year.