How well did marijuana stocks fare in 2017? It depends. Previous high-flying cannabinoid-focused biotech stocks didn't generate a lot of excitement for investors this year. Neither did most U.S.-based marijuana stocks. But it was a much different story if you looked north of the border.
All of the major Canadian medical marijuana growers racked up huge stock gains in 2017. The biggest winners were Aurora Cannabis (ACB -3.87%), Emerald Health Therapeutics (EMHT.F -3.14%), and Village Farms (VFF -4.12%). Here's what drove the impressive gains for these three marijuana stocks.
Aurora Cannabis stock has soared 170% in 2017, with only a couple of weeks left in the year. But halfway into 2017, Aurora's share price was actually down from the beginning of the year. What lit a fire beneath the stock?
First, in July Aurora moved to from the TSX Venture Exchange, which serves smaller, emerging companies, to the larger TSX. This broadened the stock's exposure to more investors. Aurora also began supplying medical marijuana to the German market in September through its subsidiary Pedanios GmbH.
However, the major catalyst for Aurora Cannabis came courtesy of one of its top rivals, Canopy Growth (CGC -4.75%). On Oct. 30, Canopy announced a partnership with large alcoholic beverage maker Constellation Brands (STZ -0.77%). As part of the deal, Constellation bought a 9.9% stake in Canopy for $245 million. This announcement caused Aurora stock to surge, as many investors suspected that other large companies could view Aurora as a potential partner.
Aurora was also busy in 2017 making its own deals. In November, the company announced its intention to acquire medical marijuana grower CanniMed Therapeutics. It's turned into a hostile takeover attempt, though, as CanniMed is trying to thward Aurora's acquisition bid.
Emerald Health Therapeutics
Emerald Health Therapeutics stock has more than quadrupled in 2017. Like Aurora Cannabis, Emerald Health is a Canadian medical marijuana grower. Also like Aurora, Emerald Health stock puttered along during the first half of the year.
It wasn't that Emerald Health didn't stay busy earlier in 2017, though. The company raised money through public stock offerings. Emerald Health launched new cannabidiol (CBD) products. The company expanded its cannabis supply through a deal with Supreme Pharmaceuticals.
But investor interest in Emerald Health really picked up, as with Aurora Cannabis, with the Canopy Growth-Constellation Brands deal. That interest only intensified with the Canadian government's announcement in November of proposed regulations for a legalized recreational cannabis market.
Emerald Health closed out 2017 with some deals of its own. In late November, the company finalized its investment in Northern Vine Canada, taking a 53% stake in the licensed medical marijuana dealer. Emerald Health also bought a position in Canadian generic drugmaker Vanc Pharmaceuticals.
Village Farms wins the top prize among marijuana stocks, with its share price skyrocketing more than 450% this year. What's especially interesting is that at the beginning of 2017, Village Farms wasn't a marijuana stock at all.
The Canadian company ranks as one of the largest growers of greenhouse tomatoes, bell peppers, and cucumbers in North America. In 2016, Village Farms CEO Mike DeGiglio expressed interest in expanding into the medical marijuana market. That idea turned into reality in June 2017 with Village Farms' announcement of a joint venture with Emerald Health.
As part of the deal, Village Farms initially converted 25 acres of one of its greenhouse facilities to grow marijuana for the medical cannabis market now and potentially the recreational marijuana market in the future. Over time, Village Farms could convert all of its Delta, British Columbia, greenhouse facilities to grow marijuana. The company believes that its joint venture with Emerald Health will become the lowest-cost marijuana producer in Canada.
It didn't take long for the impact of the transition into marijuana on Village Farms' financial results to be felt. When the company reported its third-quarter results in November, EBITDA was up 78% year over year. In the second quarter, Village Farms' EBITDA declined from the prior-year period.
An even bigger 2018?
There's good reason to think that all three of these top marijuana stocks of 2017 could enjoy an even bigger year in 2018. Legalization of recreational use of marijuana in Canada could open up an enormous new market. Canada's Parliamentary Budget Officer (PBO) estimated that recreational cannabis sales could be between $4.2 billion and $6.2 billion next year. And those projections could be too low.
Aurora Cannabis, Emerald Health, and Village Farms are counting on grabbing a nice chunk of that market. I suspect they will. That could mean that all three stocks go much higher in the new year.