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Marijuana legalization is an emerging global trend and our neighbor to the north, Canada, has been capitalizing on this opportunity.

Although the global marijuana industry is an attractive opportunity after countries and continents like Germany and Australia legalized medical marijuana, firms continue to be attracted to the United States marijuana market.

While the United States is the most exciting marijuana market opportunity, at the federal level the miracle plant remains illegal. Nevertheless, 29 states have legalized medical marijuana and 8 states have legalized recreational marijuana.

Over the last year, we have seen Canadian marijuana producers enter the United States marijuana market and at the time this was a catalyst for the companies that did so.

Now, the TSX and TSX Venture exchanges are taking another look at this and many expect changes to be made. Since marijuana is illegal at the federal level, the exchange may restrict firms from making investments in the U.S. market. 

Canadian Marijuana Producer Speaks Out

Today, Canadian marijuana industry leader Canopy Growth (WEED.TO) (TWMJF) responded to multiple media reports regarding United States marijuana market participation and security regulations. The company reiterated a press release from June 19th and said it is only conducting business in jurisdictions where it is federally legal to do so.

Canopy Growth has been leading the cannabis sector from an expansion standpoint and has operations in Australia, Germany, Brazil, and Chile. The company said that conducting activities which are federally illegal or investing in companies which do, puts Canopy Growth at risk of prosecution and potentially jeopardizing its listing on major exchanges now and in the future, limiting its access to capital from reputable United States-based funds.

Canadian Marijuana Firm Levered to the U.S. Falls 11%

Canadian marijuana stocks have been under pressure this week and Aphria (APH.TO) (APHQF) has fallen more than 11% since late July.

Aphria has significant leverage to the United States marijuana market. The Canadian licensed marijuana producer first invested in the United States through an intellectual property (IP) transfer agreement with Arizona-based Copperstate Farms, LLC. The company purchased a 40-acre greenhouse facility and is one of the largest medical cannabis facilities in Arizona. 

Earlier this year, Aphria’s subsidiary invested an additional $3 million that will help advance its capital expenditure program related to extractions, lighting and power generation. In return, Aphria's ownership increased to 18.5% from 10%.

In April, Aphria announced the launch of its United States expansion strategy through a lead investment in Liberty Health Sciences which will operate under Aphria USA. The initial $25 million investment will acquire the assets of Chesnut Hill Tree Farm LLC, a licensed holder in Florida authorized to dispense low THC medical cannabis to patients. Once the transaction is complete, Aphria will own approximately 37.6% of the issued and outstanding common shares of Liberty.

A Story to Watch

As Canadian medical marijuana producers have been under pressure this week and we will continue to monitor this development. Yesterday, Canopy Growth held up much better than Aphria and we keep an eye on this relationship.

The worst-case scenario for Aphria will most like be the TSX requiring them to sell their United States assets and this would not be bad for the company’s fundamental story. Aphria could continue to trade lower in the near term and this may create a great opportunity to buy an attractive long-term investment at a discount.