It's not by accident that the biggest cannabis stocks belong to companies based in Canada. After all, Canada was the first major economic power to legalize adult-use recreational cannabis after already building a thriving medical cannabis market.
But it's also no secret that the U.S. is by far the biggest cannabis market in the world. For Canadian cannabis companies to achieve the growth that they and investors want, they must enter the U.S. market sooner or later.
Several top Canadian cannabis producers have already revealed their strategies for competing in the U.S. market. Here are the three Canadian cannabis stocks that appear to be in the best position to win in the U.S.
1. Canopy Growth
Canopy Growth (CGC -25.07%) ranks as the biggest cannabis stock by market cap. The company also arguably claims the best strategy for entering the U.S. cannabis market.
In January, Canopy announced that it had secured approval in New York state to build a major hemp production facility. The company is spending upwards of $100 million on this facility and expects to launch hemp-based cannabidiol (CBD) products in the U.S. by the end of 2019. Canopy followed up in February by teaming with well-known lifestyle maven and entrepreneur Martha Stewart to develop and market hemp-based CBD products for the U.S. market.
But Canopy's biggest deal came in April, when the company announced that it planned to acquire U.S.-based Acreage Holdings for $3.4 billion. The catch, though, is that the acquisition won't be finalized until and unless marijuana becomes federally legal in the U.S.
There's no question that Canopy Growth is investing the most money in expanding into the U.S. hemp and marijuana markets. With big U.S.-based partner Constellation Brands at its side and some bold moves so far, Canopy appears to be in a strong position to establish significant U.S. revenue over the long run.
Tilray (TLRY) doesn't have the luxury of a well-funded equity partner to give it money to buy its way into the U.S. cannabis market. However, the company nonetheless made a key acquisition along with landing big partnership deals that could make it a formidable player in the U.S.
In February, Tilray announced that it was acquiring Manitoba Harvest for up to $318 million. Manitoba Harvest is the largest hemp-based food products company in the world, with its products sold in more than 16,000 stores in the U.S. and Canada.
While the Manitoba Harvest acquisition definitely put Tilray in the thick of the U.S. hemp market, the company's partnership with Authentic Brands Group (ABG) should also considerably increase its U.S. presence. ABG markets over 50 popular consumer brands such as Nine West, Prince, and Spyder. The company plans to launch consumer products featuring CBD supplied by Tilray by late 2019.
Tilray also partnered with beer giant Anheuser Busch InBev to develop nonalcoholic cannabis-infused beverages for the Canadian market. Don't be surprised if that relationship ultimately expands to include the U.S. market.
3. Cronos Group
Cronos Group (CRON -14.29%) kept its U.S. plans close to the vest for quite a while. In April CEO Mike Gorenstein said that the U.S. hemp market was "something that we're going to continue watching very closely, and we probably won't telegraph our strategy sort of as publicly as some others have."
The telegraphing began in earnest last week, though. Cronos announced that it's acquiring four of Redwood Holding Group's operating subsidiaries for $300 million. Cronos will pay $225 million up front in cash with another $75 million in stock.
Redwood markets the Lord Jones lineup of hemp CBD consumer products. Lord Jones ranks as one of the top CBD cosmetic brands, with its products sold in retail stores including Sephora.
This might not be the last we'll hear from Cronos Group's efforts to establish a beachhead in the huge U.S. market. The company still has plenty of cash left from the $1.8 billion investment made by tobacco giant Altria earlier this year.
A potential reshuffling on the way?
There could very well be a potential reshuffling on the way for this top three list. Aurora Cannabis (ACB -13.53%) has been clear that it intends to find one or more major partners from outside the cannabis industry as part of its strategy to enter the U.S. market. In March, Aurora brought billionaire investor Nelson Peltz on board as a strategic advisor to help with this effort.
Don't count out HEXO (HEXO -11.16%), either. In June, HEXO CEO Sebastien St-Louis stated that his company could expand its partnership with Molson Coors Brewing to target markets outside of Canada. In addition, he said that HEXO is in discussions with more than 60 Fortune 500 companies and hopes to add another big partner next year.
Depending on what moves Aurora and HEXO make, it's possible that one or both of these companies could move ahead of Cronos or Tilray in terms of U.S. strategies. And a really impressive deal or two could even push Canopy Growth out of its top spot.