The issue of safety has become a big deal in Canada’s budding medical marijuana business and one LP, Aurora Cannabis, is leaps ahead of the others, according to financial analysts at Vancouver‘s Cannacord Genuity.
Last week Aurora introduced a new product-testing disclosure process it said would ensure to customers its pot had been certified by an independent third party laboratory as having passed testing for the widest possible range of potential contaminants.
“We believe that a trust issue has arisen between the emerging Canadian cannabis industry and its medical customers following two high-profile recalls by Aurora’s competitors,” Canaccord analysts Neil Maruoka and Matt Bottomley wrote in a report released yesterday. “Further, we believe that safety is particularly important for therapeutics regulated through Health Canada, including medical cannabis. While Aurora has never been found to grow contaminated product, we view this as an important strategy to rebuild customer confidence.”
The two analysts also said that, at $2.42 per share, Aurora provides the most attractive return although OrganiGram Inc. provides investors with the greatest upside if it can overcome its image problems and lawsuits after repeated products recalls due to pesticide contamination.
The analysts said increasingly common acceptance of cannabis use has reached an inflection point and the recreational market could be in place by 2018 and grow to encompass some 3.8 million customers by 2021.
However, high government standards and rigorous requirements have resulted in high barriers to entry — Health Canada has only approved two per cent of applicants for a licence to produce pot— securing first-mover advantage for existing licensed producers.
“Despite expectations (and recent Task Force recommendations) that more small producers be approved, we believe that existing LPs already have a substantial head start over unlicensed peers… While Health Canada is not in the business of creating oligopolies, we believe the clear separation for incumbents will likely provide a distinct advantage as the race for capacity and economies of scale continues.”