There are distinct categories for Canadian marijuana stocks when it comes to market cap. Most of these stocks have market caps of well under $1 billion. A few are between $1 billion and $5 billion. But only three claim market caps greater than $5 billion: Aurora Cannabis (NYSE: ACB), Canopy Growth (NYSE: CGC), and Tilray (NASDAQ: TLRY).
Which of these big marijuana stocks is the best pick for investors? Individuals looking to buy a diamond use the so-called "four Cs" -- cut, color, clarity, and carat -- with some adding cost as a fifth C. There are also five Cs that investors can use to determine the best big marijuana stock to buy: capacity, competitive position, connections, cash, and cost. How do Aurora, Canopy Growth, and Tilray compare in these categories?
Image source: Getty Images.
Aurora Cannabis currently can produce around 70,000 kilograms of cannabis per year. By early 2019, the company's annual production capacity will increase to more than 150,000 kilograms. Aurora is ramping up its capacity, though, and expects to be able to produce more than 500,000 kilograms annually in the near future. The company's acquisition of Uruguay-based ICC Labs will boost capacity even more.
Canopy Growth doesn't talk about its capacity in terms of kilograms of cannabis produced per year. However, the company currently has more than 4.3 million square feet of licensed growing space. Its goal is to license a total of 5.6 million square feet of growing space. This should translate to an annual production capacity for Canopy Growth of well over 500,000 kilograms per year.
Tilray isn't anywhere close to Aurora and Canopy Growth in production capacity right now. The company should have 912,000 square feet of growing space as of the end of 2018. However, Tilray has plenty of room to expand and could still rank in the top five marijuana producers in terms of production capacity within a couple of years.
Advantage: Aurora Cannabis.
Canopy Growth claims the highest total volume for supply agreements with provinces and territories, with commitments totaling 70,000 kilograms excluding Ontario. Aurora Cannabis was able to brag a little in its fiscal 2019 Q1 update, though. The company stated that through Oct. 31, 2018, Aurora brands comprised around 30% of the total market supplied through the Ontario Cannabis Store website, with two of its brands in the top three best-selling recreational marijuana products.
Tilray had bragging rights of its own in the global medical marijuana market. In September, it became the first marijuana producer to gain approval to supply both cannabis flower and cannabis oils to Germany.
However, Aurora Cannabis and Canopy Growth should have solid prospects in international medical marijuana markets, including Germany. And Tilray should perform very well in the domestic Canadian recreational marijuana market. All three companies appear to be well positioned to compete at home and across the world.
Tilray announced a partnership earlier this year with Sandoz Canada, a subsidiary of Novartis. The two companies are jointly developing and marketing medical cannabis products. Aurora Cannabis has been reportedly in discussions with several potential partners outside of the cannabis industry, although no deal has materialized yet.
Canopy Growth, on the other hand, scored the biggest partnership deal in the history of the cannabis industry. Fortune 500 alcoholic beverage company Constellation Brands (NYSE: STZ) bought a 9.9% stake in Canopy last year. Constellation upped its bet in a major way in August 2018 with a $4 billion investment in Canopy, increasing its stake to 38%.
Advantage: Canopy Growth.
Cash is important to each of these marijuana growers for several reasons. None of them are consistently profitable yet. They all need capital for continued expansion. And while Aurora Cannabis, Canopy Growth, and Tilray can easily raise money through stock offerings, doing so dilutes the value of their existing shares.
Aurora reported 147.8 million in Canadian dollars in cash and cash equivalents as of Sept. 30, 2018. Tilray had US$104.2 million in cash and cash equivalents as of the same date.
The biggest winner in terms of cash on hand, though, is definitely Canopy Growth. At the end of September, Canopy's cash stockpile totaled US$429 million. But that amount didn't include cash received as part of the Constellation Brands deal, which closed on Nov. 1, 2018. With billions of dollars now in hand, Canopy Growth is in an enviable position.
Advantage: Canopy Growth.
This category refers to each company's valuation. All three stocks are definitely priced at a premium relative to their historical performance.
Canopy Growth and Tilray have gone back and forth over the last few months to have the largest market cap in the industry. Currently, Canopy holds the title with a market cap of $11.5 billion. Tilray comes in second with a market cap of $9.6 billion. Aurora Cannabis is the third-largest Canadian marijuana grower with a market cap of $5.7 billion.
Based on trailing-12-month sales, Aurora is the most attractively valued of the three. Aurora also provides the most capacity for each dollar invested. However, the stock is by no means cheap.
Advantage: Aurora Cannabis.
Best big marijuana stock
Which is the best big marijuana stock? Tilray can be ruled out based on the five Cs. That leaves a one-on-one matchup between Aurora Cannabis and Canopy Growth.
Both Aurora and Canopy win in two categories. But are Aurora's advantages in capacity and cost more important than Canopy's advantages in connections and cash, or vice versa? I think that connections and cash are more critical to long-term success.
Canopy's relationship with Constellation Brands makes it the top player in the industry, in my view. The financial flexibility that the Constellation deal gives Canopy could enable the company to vault to first place in production capacity if it chose to do so. This partnership could also provide Canopy Growth a significant competitive edge over its rivals in the future.
Aurora and Tilray could make their own deals that change the playing field. For now, though, Canopy Growth is the best big marijuana stock.
More From The Motley Fool
- The Best Marijuana Stocks to Buy in 2018
- Marijuana Stocks Are Overhyped: 10 Better Buys for You Now
- Your 2018 Guide to Investing in Marijuana Stocks