If this were a boxing match, Canopy Growth Corporation (NYSE:CGC) and Auxly Cannabis Group Inc. (NASDAQOTH:CBWTF) probably wouldn't be allowed to fight in the same ring. Canopy Growth would definitely be a heavyweight, with a market cap of more than $11.5 billion. Auxly Cannabis' market cap of around $540 million would almost certainly put the company in a lower weight category.
But this isn't a boxing match. And smaller stocks can often be better picks for investors than larger ones are. Which is the better marijuana stock right now? Here's how Canopy Growth and Auxly Cannabis compare.
The case for Canopy Growth
In many respects, Canopy Growth is the king of the cannabis industry. The keys to success in the industry are production capacity, positioning for the coming recreational marijuana market in Canada, and a presence in rapidly expanding global marijuana markets. Canopy checks off all the boxes.
The company is on track to have 3.2 million square feet of growing space, giving Canopy one of the largest production capacities among marijuana growers. This doesn't include, by the way, Canopy's supply agreements with third-party growers.
Canopy Growth is arguably in the best position of all for the Canadian recreational marijuana market. It claims licensed production sites in seven of Canada's 10 provinces. Canopy has won supply agreements with every province and territory that has finalized plans so far, notably including Ontario. The company has a solid strategy of launching retail cannabis stores in several provinces as well.
The biggest feather in its cap related to the recreational marijuana market, though, is Canopy's relationship with major alcoholic beverage company Constellation Brands. Constellation acquired a 9.9% stake in Canopy last year and announced a deal to partner on developing cannabis-infused beverages. In August, Constellation invested another $4 billion in Canopy, increasing its stake to 38%.
Canopy is also in great shape to compete in international cannabis markets. The company already generates a nice chunk of its revenue in Germany, the biggest medical marijuana market outside of North America. Canopy has operations or partnerships in several other early-stage cannabis markets as well.
The case for Auxly Cannabis
Auxly Cannabis might be a lot smaller than Canopy Growth, but it has solid growth prospects as well. The company projects that its annual production capacity will reach 230,000 kilograms next year. That level makes Auxly stack up quite favorably against several Canadian marijuana growers with much larger market caps.
But the company isn't your typical marijuana grower. Auxly has primarily focused in the past on a streaming model where it provides funding for other companies in exchange for a stream of revenue, often in the form of a percentage of crop yields.
Now, though, Auxly has moved beyond just doing streaming deals by completely gobbling up other companies. Auxly's acquisitions include Dosecann, which develops cannabis-based medical products and consumer products, and KGK Science, a top Canadian contract research organization.
The company's acquisition of Kolab Project will give Auxly a foothold in the cannabis retail market, with Kolab planning to launch a retail store in Saskatchewan. This transaction, along with several other recent acquisitions, also boost Auxly's presence in the "upstream" cannabis cultivation component of the industry.
What about the international opportunity? Auxly is acquiring majority ownership in Uruguay cannabis company Inverell S.A. It also recently announced a deal with Aphria for options to purchase cannabis flower and cannabis oil for distribution to international markets including Mexico, Portugal, and Serbia.
Better marijuana stock
Size doesn't always matter, but, in this case, I think it does. Canopy Growth looks more attractive to me on nearly every front except valuation.
The biggest advantage for Canopy is its partnership with Constellation. Canopy now has a huge cash stockpile to fund expansion throughout the world. Auxly Cannabis is an intriguing marijuana stock, but I think Canopy Growth is more likely to be a long-term winner.