Cannabis 2.0 legalization will take place in Canada this month. Notably, the second phase will legalize cannabis edibles, marijuana-infused beverages, extracts, and various other products. Cannabis players are ready to expand in the edibles market. Previously, we discussed Aurora Cannabis (ACB) and Canopy Growth’s (CGC) (WEED) plans. Let’s take a look at Aphria’s (APHA) plans in the edibles market.
Cannabis 2.0 could be huge
Cannabis 2.0 will legalize edibles this month. To learn more, read Cannabis 2.0 Legalization: Canada Is Ready. As a result, the cannabis edibles market will likely hit $4.1 billion in Canada and the US by 2022. Even consumers who favor legalization want to try edibles. Deloitte’s recent research report, “Nurturing New Growth,” discusses how big the Canadian market edibles could get.
Aphria’s plans for Cannabis 2.0
In Aphria’s fourth-quarter earnings call, the company discussed how the second phase of legalization would be a turning point for the Canadian cannabis market. The company plans to expand its consumer base in the vape and concentrates business. Aphria thinks that vapes and concentrates will take up 30% of the entire Canadian adult-use market by 2021.
The company made a strategic deal with PAX Labs in June. Notably, Aphria plans to introduce a broad portfolio of vapes and concentrate products. The company plans to manufacture PAX pods for medical patients and recreational adult-use. However, the business’s profitability depends on whether the amended Cannabis Act allows cannabis extracts to be sold for vaping.
Aphria also plans to expand in the US CBD market after medical cannabis is legal at the federal level. Currently, the CBD market faces scrutiny from the FDA. The FDA is hesitant about the use of CBD based products due to lack of proper research. Since marijuana is illegal at the federal level, it creates hurdles for quality research to understand the pros and cons.
In the US, Washington, which legalized recreational marijuana in 2012, is ramping up its marijuana laws to align with Cannabis 2.0.
What did the company’s management say?
Irwin Simon, Aphria’s chairman and interim CEO, said, “We believe our Canadian business will be a significant contributor to our results over the next several years with the potential for us to create one of the largest production footprints in the cannabis industry. We look forward to addressing the industry-wide supply constraints with our expanded production capacity, sophisticated proprietary automation technology that can help ensure Aphria remains at the forefront of the cannabis cultivation innovation.”
The company plans to generate $1 billion in annualized cannabis revenues by the end of 2020 after it’s fully licensed. Overall, Aphria thinks that it will be able to achieve higher profitability. The company expects to generate net revenues of approximately 650 million–700 million Canadian dollars for fiscal 2020. Also, Aphria expects an adjusted EBITDA of roughly 88 million–95 million Canadian dollars.
Peers prepare for Cannabis 2.0
We discussed how Aurora Cannabis and Canopy Growth are preparing for the second phase of legalization. To learn more, read Cannabis 2.0: Aurora Cannabis Gears Up for Edibles Market and Canopy Growth: Getting Ready for Cannabis 2.0.
Meanwhile, to give Aphria competition in the vaping segment, Canopy Growth made a distribution agreement with Greenlane Holdings. Notably, Greenlane will distribute Canopy Growth’s vaporizer products from its Storz & Bickel vaporizer business in the US. OrganiGram (OGI) will also be manufacturing vape pen products through its new facility.
In September, Aurora Cannabis fell 20.1%, while Canopy Growth fell 2.7%. OrganiGram fell 18.2%, while Aphria fell 17.0% in September.
While cannabis companies prepare for the edibles and vapes market, vaping-related deaths are a significant concern in the US.
We’ll have to see how cannabis companies can play out their expansion plans. Will they be able to cash in from the edibles market and improve their profitability?
Stay with us for the latest updates on the cannabis sector.