As Canada moves closer to the legalization of marijuana use for recreational purposes, cannabis stocks in the country are on a surge. While the newly opened recreational marijuana market may provide a vast upside opportunity for pot stocks, they may be faced with regulatory hardships, just like the tobacco industry. That said, the investors continue to be bullish on these stocks and may be anticipating a growth trajectory similar to that of tobacco stocks, such as Philip Morris and Altria. As a result of this anticipation, Aphria Inc. (TSX:APH), a low cost of producer of medicinal marijuana in Canada, has gained momentum over the last one month. Thus, in this note we discuss Aphria’s strategy to tap into the recreational marijuana market. You can view our valuation for the company on our interactive dashboard and create scenarios to match your assumptions.
Expansion of Production Capacity
Canada is soon going to be the first G7 nation to legalize the use of marijuana for recreational purposes by adult consumers. This revolutionary law is anticipated to open up a new and extremely lucrative market for cannabis companies in the country. According to market assessment, the sales of Canadian marijuana are expected to go up by more than $4 billion in the first year of its legalization.
Given this vast opportunity, Aphria has announced its plan to spend $55 million to build an extraction facility in Leamington, which is the greenhouse capital of Canada. This state-of-the-art Extraction Center of Excellence will be equipped to produce world-class cannabis concentrates, including fractionated distillates and will be able to process around 200,000 kgs of cannabis every year. The facility is scheduled to release its first concentrates by March 2019.
In addition to this new facility, the company also has plans to spend an additional $20 million