October wasn't pretty for marijuana stocks. All of the big five Canadian marijuana growers' stocks plunged. And the horrible performance came during a month when the much-anticipated recreational marijuana market in Canada opened for business.
The conventional wisdom would probably be that the launch of a multibillion-dollar market would be a good thing for the stocks. However, a twist on the old investing adage "buy the rumor, sell the news" appeared to rule the day -- actually, it ruled the month.
But October has now passed into the dust heap of history. Are there any marijuana stocks worth buying after the carnage? The answer is "yes." One of them is even a member of the "big five club." Here's why the best big marijuana stock to buy in November is none other than Aphria (NYSE:APHA) (OTC:APHQF).
Why not the others?
Aurora Cannabis (NYSE:ACB), Cronos Group (NASDAQ:CRON), and Tilray (NASDAQ:TLRY) dropped a lot more than Aphria did during the awful October. You might think that they would be better bargains. But they're not.
The main reason Aurora and Tilray fell so hard was that their stocks had increased much higher than their business prospects justified. Aurora enjoyed a big boost in September after reports surfaced that Coca-Cola was talking to the company about a potential partnership to develop cannabis-infused beverages. Coca-Cola later announced, however, that it wasn't interested in cannabis-related products.
Tilray skyrocketed because of a high-octane combination of some positive news, a high level of short interest, and a really low stock float. The latter two factors probably played the largest role in Tilray's jaw-dropping gains. They also played a key role in the stock's big retreat.
Even with their pullbacks, though, Aurora Cannabis and Tilray are still priced at nosebleed prices. Aurora's market cap is close to three times bigger than Aphria's. Tilray's market cap is roughly four times bigger than Aphria's.
Cronos Group, on the other hand, is smaller than Aphria. Why isn't it the smarter pick for November? It doesn't have all the positives going for it that Aphria does.
That leaves Canopy Growth (NYSE:CGC). Canopy's close relationship with and huge cash infusion from Constellation Brands puts it in probably the best position of all the Canadian marijuana growers over the long term. But Canopy's price tag is still really high.
The attraction for Aphria
So why Aphria? Its stock performance trailed the other big five Canadian marijuana stocks throughout most of 2018. One big reason why was that Aphria didn't trade on a major U.S. stock exchange like the others did. That's no longer the case. As of Nov. 1, Aphria's stock is listed on the New York Stock Exchange (NYSE) along with Canopy Growth and Aurora Cannabis.
Aphria is on track to boost its annual production capacity to 255,000 kilograms next year. That should rank it third among Canadian marijuana growers, trailing only Aurora Cannabis and Canopy Growth.
The company is also in great shape to serve the Canadian recreational marijuana market. Aphria secured supply agreements with all 10 provinces plus the Yukon territory. It teamed up with Southern Glazer's, the largest wine and spirits distributor in North America, for distribution of recreational cannabis products throughout Canada.
Aphria's international opportunities look very promising, too. It has a solid presence in Germany, the biggest international marijuana market outside of the U.S. and Canada. Aphria also is well positioned in other medical marijuana markets across the world, including Australia and Latin America.
But don't the other major players also have plenty of production capacity and a lot of growth potential at home and internationally as well? They do. However, with the exception of Cronos Group, they're all much larger than Aphria. In terms of bang for the buck, Aphria looks like the best choice among the big Canadian marijuana stocks.
Major companies outside of the cannabis industry should be able to see the value offered by Aphria as well. Aphria is likely to be near the top of the list for any large alcoholic beverage maker or tobacco company looking to line up a partner to target the global cannabis market. Canopy already has a big partner, but it wouldn't be surprising if Aphria was the next marijuana grower to land a major deal.
Still some risks
While Aphria appears to be the best big marijuana stock to buy in November, the company still faces plenty of risks. There's a real possibility that the awful October for marijuana stocks will extend into a nasty November. Aphria CEO Vic Neufeld warned even before the opening of the Canadian recreational marijuana market that there could be significant supply chain issues in the first several months.
At some point, supply will catch up with and exceed demand. That will result in an entirely different set of problems for Aphria and its peers.
But the cannabis industry has an enormous opportunity over the long run. Aphria looks like the most attractively valued stock among the big players to profit from this growth.