The world of cannabis production is an inherently difficult one for investors to analyze for a number of reasons. On a fundamental basis, cannabis producers provide investors with headaches due to the convoluted accounting standards which are imposed on cannabis firms due to their production of what is deemed to be an agricultural good.
Combined with the fact that most companies are currently losing money and are burning through cash at an incredible rate as these firms ramp up production capacity prior to marijuana legalization which has been set for October 17, having the ability to accurately forecast future cash flows is a near-impossible task at this point in time.
Companies such as Aphria Inc. (TSX:APH) which have long held one of the top spots in terms of production capacity and market share in the Canadian market have taken initiatives to secure distribution, once the green commodity becomes legal.
While competitors have recently made deals with larger distributors, Aphria’s distribution deal with Southern Glazer’s Wine & Spirits to become the company’s exclusive distributor of recreational cannabis in Canada appears to be one of the best partnerships to date in terms of value-added supply chain management.
Each cannabis producer will have their own challenges with respect to ramping up production, however on the demand side of the equation, ensuring their supply can end up in the hands of the end consumer is one major concern investors such as myself have had for some time.
I will be keeping my eye on Aphria as legalization rolls out, and re-assess the performance of this partnership over time.
Invest wisely, my friends.
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