Top Marijuana Stock: Aurora Plays Master Stroke with Liquor Stores Deal

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This Marijuana Stock Is Firing on All Cylinders Ahead of Legalization Day

After a massive dip through the last half of January, weed stocks are once again trading in green. Top marijuana stocks plummeted as much as 30% during the mid-January slump. But the market correction was expected. This ebb and flow is part and parcel of marijuana investing. It was easily predictable for prices to retrace after their grand rally through the latter half of December.

We have been warning all along that the marijuana industry is acutely volatile. If you’ve been paying attention to our advice, you’d have little reason to worry.

Savvy investors can smoothly ride out these nauseating ups and downs, given that they have purchased tickets to safe rides. When I say safe, I mean investments that investors can buy and hold on for the long haul. Those are the kind of investments value investors should be eyeing for peace of mind and early retirement.

Naturally, only the first-rate marijuana companies will make the cut here. As an analyst, when I go out on a hunt for such fundamentally promising investments, one name keeps popping up before my eyes.

This company has made more headlines this year than literally any other marijuana company out there. Every other day, we hear of a new partnership, acquisition, or strategic initiative being undertaken by this heavyweight.

The company begs no introduction. It is a well-established name in the industry and has particularly earned its fame after having emerged as the biggest competition to the industry leader, Canopy Growth Corp (OTCMKTS:TWMJF), (TSE:WEED).

I’m referring to Aurora Cannabis Inc (OTCMKTS:ACBFF), (TSE:ACB), which is in the news again for having brokered yet another landmark deal.

On Monday, Aurora bought a minority stake in Liquor Stores N.A. Ltd
(OTCMKTS:LQSIF), (TSE:LIQ). The name of the target company explains its business. Liquor Stores in an alcohol retailer based out of Edmonton, Canada.

Wait, does this mean this marijuana company is entering a new line of business? No. Vice versa, actually. Liquor Stores is entering the marijuana industry.

Liquor Stores would be receiving $103.5 million from Aurora in lieu of the investment, amounting to about 19.9% of equity stake, with Aurora having the option to increase this stake up to 40%.

With the money received from Aurora, Liquor Stores would be revamping some of its existing liquor stores to add Aurora’s marijuana products, as well as opening new marijuana retail stores across the country.

Alcohol And Marijuana: A Match Made in Heaven?

A marijuana seller tying the knot with an alcohol seller may sound like an odd match at first. After all, the two are supposedly competitors. But there are reasons why this deal makes perfect business sense for both companies.

The legalization of recreational pot will level the playing field for alcohol and marijuana. Canadians will get an open choice to pick either alcohol or weed for their recreational needs.

For Liquor Stores, it’s a preemptive move to protect its business from the booming marijuana industry ahead of Canada’s full legalization.

Studies are showing that marijuana is gradually encroaching upon the alcohol market. (Source: “People will choose legal marijuana over alcohol, U.S. study shows,” Global News, December 15, 2017.)

Recent surveys have found that a growing number of alcohol drinkers would choose a reefer over a beer can if given the choice in a free market. (Source: “A quarter of US beer drinkers have switched to marijuana or would if it was legal,” Quartz, March 16, 2017.)

To avoid losing ground to marijuana sellers, Liquor Stores has made a timely move to enter the marijuana industry. By allowing internal cannibalization, Liquor Stores can continue doing business. It’s not an odd idea, after all. Companies like Apple Inc. (NASDAQ:AAPL) are believed to have practiced self-cannibalization to maintain a lead in the market.

Now, coming to Aurora, the deal will allow Aurora to fortify its base on Canada’s West Coast. We have to give it up to Aurora’s farsighted management for crafting this brilliant move.

Unlike Ontario and the eastern provinces, where the provincial governments will be selling recreational pot through the government-owned liquor stores, the western province of Alberta will be allowing private stores to conduct over-the-counter sales of recreational pot.

Recall that the Vancouver-based Aurora is building a massive production facility—Aurora Sky—in Edmonton, Alberta. This western province will ultimately be Aurora’s biggest target market.

Now, Liquor Stores is also an Alberta-based company, running over 200 stores across Alberta and British Columbia—the two biggest provinces in Western Canada. It also runs some stores in the U.S.

In short, this deal will be symbiotic in nature, allowing both companies to expand their influence across the western region. But Aurora, in particular, may have hit a home run with this investment.

According to the CEO of Aurora, Terry Booth, the partnership will be “providing the opportunity for our companies to establish a leading private retail footprint in Western Canada.” (Source: “Aurora Cannabis and Liquor Stores N.A. Announce Investment to Develop Western Canadian Retail Cannabis Business,” Newswire, February 5, 2017.)

Aurora has been one of my top picks for 2018 for one salient reason. It is the only marijuana company that has managed to set up its production facilities coast to coast as Canada gears up for full legalization.

In addition to its West Coast expansion, the company is also making inroads into archrival Canopy Growth’s stronghold in Central Canada. Aurora has just closed its acquisition of CanniMed Therapeutics Inc (OTCMKTS:CMMDF, TSE:CMED), a Saskatchewan-based medical marijuana company.

Then, moving towards the East Coast, Aurora has two existing production facilities in Quebec. On top of that, it has also recently bought a minority stake in a Quebec-based company—The Green Organic Dutchman.

All in all, Aurora has its footprints running across the Canadian map now. I’ve discussed Aurora’s strategic geographical expansion in further detail here.

Analyst Take

As always, I must remind my readers to do their due research before investing in this space. Just remember; before you jump aboard a ship, make sure it won’t run aground before you’re off it.

That said, Aurora stock is one top marijuana stock you should be watching in 2018. Because from where I see it, this marijuana stock is a rocket ship firing on all cylinders and headed straight for the stratosphere.