The marijuana industry underwent a transformation like never before in 2018. Following nine decades of recreational cannabis prohibition, Canada's Parliament passed the Cannabis Act, thereby legalizing weed for adult consumption. In one act, marijuana went from being a somewhat taboo topic to a legitimate business model.
The big question is, just how big can the Canadian marijuana industry become? While that's a very tough question to answer so early in the legalization process, we can gather some idea from the peak production estimates of its largest growers. Though some marijuana growers have been forthcoming with peak projections, others have left quite a lot of interpretation up to investors.
With the assumption that growers will develop leased and owned adjacent properties for production purposes, it's not out of the question that Canada's top 10 pot growers one day yield an aggregate of 3.3 million kilograms per year. I'll walk you through how I got to such a lofty figure by briefly examining the production potential of each of the 10 top growers.
1. Aurora Cannabis: estimated peak of 1.2 million kilograms
Before Aurora Cannabis (ACB 5.48%) closed its acquisition of ICC Labs in South America, management had been projecting around 570,000 kilograms in peak annual production. In Aurora's press release covering the $221 million buyout of ICC Labs, it specifically mentions ICC's estimated production capacity of "over 450,000 kg per annum." That includes 92,000 square feet of existing production, 1.1 million square feet of under construction greenhouses, and over 800 acres of land that could be developed into growing space. If fully developed, this pushes Aurora Cannabis to just over 1 million kilograms.
However, don't overlook the company's acquisition of MedReleaf, which closed during the summer. MedReleaf was on track for 140,000 kilograms of peak output but had 95 acres of land it owned adjacent to its Exeter facility. Assuming Aurora Cannabis uses this space to construct a facility that's about 1 1/2 times the size of Exeter, Aurora's peak annual output pushes to 1.2 million kilograms.
2. Canopy Growth: estimated peak of 560,000 kilograms
Check out the latest Canopy Growth earnings call transcript.
Unlike Aurora Cannabis, Canopy Growth (CGC 10.74%) has been tight-lipped about its peak production potential. What we do know is that Canopy Growth has 4.3 million square feet of already licensed cultivation space, based on its most recent quarterly report, and it aims to have all 5.6 million square feet of capacity fully licensed for cultivation before the end of this year. Assuming Canopy Growth can generate 100,000 kilograms per every 1 million square feet in growing space, which is a somewhat middle-of-the-road yield projection, it would be on track to produce 560,000 kilograms annually, when fully up to speed.
You'll also want to keep in mind that Canopy is sitting on a mountain of cash (more than $4 billion) following an equity investment from Constellation Brands. This could entice Canopy to acquire extra production in the months ahead.
3. Emerald Health Therapeutics: estimated peak of 350,000 kilograms
Emerald Health Therapeutics isn't a name you hear about often, but it could be a mammoth producer if it chose to develop all of its growing space. Partnered with Village Farms International, the duo is retrofitting existing vegetable-growing facilities for cannabis production. The joint venture, known as Pure Sunfarms, spans 1.1 million square feet and should produce 75,000 kilograms annually when fully functional. Combined with its Agro Biotech purchase and Metro Vancouver facility, this gets Emerald Health to around 100,000 kilograms.
But the thing is, Pure Sunfarms has a 3.7-million-square-foot lease option adjacent to its existing facility. If this land were utilized, it would conservatively add another 250,000 kilograms in annual output, albeit it would take quite a while to develop.
4. Tilray: estimated peak of 320,000 kilograms
Check out the latest Tilray earnings call transcript.
Another pot grower leaving peak production estimates up to marijuana investors' vivid imaginations is Tilray (TLRY). According to the company's S-1 prospectus filing in June, it aimed to have just over 850,000 square feet of capacity ready by the end of the 2018 calendar year. In my best estimate, this would put Tilray on track for 80,000 kilograms in annual output.
Like its peers, Tilray has plenty of adjacent land that it could use to expand its production. In fact, it had close to 3 million square feet readily available for construction, per its prospectus. Assuming Tilray utilizes about 2.5 million square feet for additional growing capacity, with perhaps other square footage used for research and development and processing, this could easily boost its annual output to 320,000 kilograms.
5. Aphria: estimated peak of 255,000 kilograms
Check out the latest Aphria earnings call transcript.
There are a few pot stocks that tell it like it is. According to Aphria's (APHA) management team, the currently embattled grower is on pace to produce 255,000 kilograms a year when running on all cylinders.
Most of this production is expected to come from two projects: Aphria One and Aphria Diamond. Aphria One is the company's four-phase organic build that cost in excess of $100 million and should yield 100,000 kilograms per year. Then there's the joint venture with Double Diamond Farms which, per company estimates, will produce 120,000 kilograms annually. The remaining 35,000 kilograms comes from the company's acquisition of Broken Coast Cannabis and an extraction center for cannabis concentrates that's currently under construction.
6. The Green Organic Dutchman: estimated peak of 195,000 kilograms
Another transparent grower is The Green Organic Dutchman, which, when complete with its projects, should be yielding 195,000 kilograms a year. The bulk of this production (102,000 kilograms) should come from its Quebec property, with its Ontario expansion yielding a more modest 14,000 kilograms at peak capacity.
The remainder will come from The Green Organic Dutchman's aggressive expansion moves announced this past June. This includes 40,000 kilograms in peak output from a 287,245-square-foot facility devoted to edibles and beverage production. This, of course, assumes that Parliament approves other consumption options besides dried flower, cannabis oils, and sublingual sprays in 2019.
7. Cronos Group: estimated peak of 130,000 kilograms
Check out the latest Cronos Group earnings call transcript.
Investors also have to play a bit of a guessing game with Cronos Group (CRON 0.96%) and its multiple production sources. In July, Cronos Group formed a joint venture with investors that led to the creation of Cronos GrowCo, an 850,000-square-foot facility that's currently under construction, and which should produce 70,000 kilograms per year.
Beyond Cronos GrowCo, the company expects to generate 40,000 kilograms of peak output from Peace Naturals, maybe 150 kilograms from Original BC, 2,000 kilograms from Cronos Australia, and 5,000 kilograms from Cronos Israel. Assuming another 10,000 kilograms to 12,000 kilograms in equivalent production (based on my estimate) from its partnership with Ginkgo Bioworks to develop cannabinoids, this is how I arrived at 130,000 kilograms in maximum annual output.
8. OrganiGram Holdings: estimated peak of 113,000 kilograms
One marijuana grower with little room for interpretation is Atlantic-based OrganiGram Holdings, which is on track for 113,000 kilograms, according to the company's management team. OrganiGram operates a single grow site in Moncton, New Brunswick, which is why projecting its peak output is so easy.
What's particularly unique about OrganiGram is that it's employing a three-leveled growing system at its Moncton site to maximize growing capacity. To produce 113,000 kilograms of pot, OrganiGram will need just 490,000 square feet of growing space. That's unheard of efficiency, and it should help keep production costs on a per-gram basis way down.
9. CannTrust Holdings: estimated peak of 110,000 kilograms
Check out the latest CannTrust Holdings earnings call transcript.
CannTrust Holdings looks to be on track to become one of the largest hydroponic growers in the world. Most of its production is slated to come from the Niagara greenhouse, which could span 1.05 million square feet when fully complete. The remainder is generated from the Vaughan facility, which spans 60,000 square feet. Assuming CannTrust can hit 100,000 kilograms per 1 million square feet with its high-yield hydroponic focus, then 110,000 kilograms of peak output is a real possibility.
It's worth noting that CannTrust has struggled to obtain the necessary permits in the town of Pelham to complete the third phase of its Niagara expansion. With 450,000 square feet of its Niagara perpetual harvest facility complete, CannTrust has been held up on construction of the final 600,000 square feet. Depending on what happens here, CannTrust may look to acquisitions to instead bolster its output.
10. HEXO: estimated peak of 108,000 kilograms
Last, but not least, the management team at Quebec-based HEXO has commented that the company's peak production target is 108,000 kilograms. HEXO already has 310,000 square feet in completed facilities, and has been expecting to finish a 1 million-square-foot expansion adjacent to its Gatineau grow operations in Quebec by the end of calendar year 2018.
What isn't factored into this total, or for that matter into Canopy Growth's peak estimate, is what kilogram-equivalent production might arise from cannabis-infused beverages. HEXO formed a joint venture with Molson Coors Brewing at the beginning of August, and the duo could start production and sales later this year.
Long story short, the Canadian pot industry could be much bigger than you may realize.