CGC vs ACB, an Exhaustive, and Exhausting Analysis... So my old man is looking at investing a few quid into the MJ sector. He doesn't fully understand market cap, so i tried the whole "By buying one share of CGC you get a substantially larger piece of what is currently (and may increasingly be) a substantially larger pie” thing vs ACB. There is much more to it, he likes the ACB plan, it's impressive and easy to understand, and the newb investor (as i still am as well) is drawn to what looks like easier multiples in roi. But it seemed fortuitous that Cannacord came out with their analysis favouring ACB, so i thought i'd dig a little deeper into the pros and cons on each for him and share it with the board. Please keep in mind much of this is somewhat subjective, i’m not an accountant...
Current operational facilities:
ACB - 55 200 sqft
CGC - 650 000 soft (Tweed Farms 350k, Smiths Falls 168k, Bedro 52K, Mettrum 80k)
Current HC Licensed Capacity:
ACB - 5400 kg
CGC - 19 100 kg
So currently CGC has over 10x the operational grow space and approx 4x the licensed capacity. In my opinion, ACB's admittedly phenomenal growth in revenues will be plateauing shortly, if it hasn't already. The shovels are in the ground for Aurora Sky, but it will be a very long time before the first bud matures in that monster greenhouse. In the meantime (probably at the very minimum for the next 6 months to a year) they will have no choice but to purchase capacity and license with substantially more (and more expensive) dilution, and/or buy wholesale from other LP's, which is obviously going to reduce their margins.
In contrast, CGC's revenues are set to ramp up sharply with the next earnings report. In my opinion this ramping won't be a one off and won't plateau for some time as grow rooms come on line at Smiths Falls, Mettrum is fully integrated and expanded, and Tweed Farms is maximized from the perspective of efficiency and yield.
Growing Platform:
ACB - Approx 50 000 sqft indoor
- Aurora Sky to be approx
800 000 sqft of hybrid
greenhouse.
Cgc - 350 000 greenhouse
- 300 000 indoors including
Smiths Falls, Bedrocan,
and Mettrum facilities, keep
In mind this is pure grow
Space, processing is over
and above (from my understanding)
-The Dealers License Area,
i think we'd be remiss in
underestimating what this
space allows Canopy to do as far as R&D etc...
-The breeding room
-Future plans for CGC expansion not public as of yet, but
capacity growth is steadily
incremental and being built
out all the time. It is also
important to note, from my
perspective, that Canopy's
rigorous SOP's seem to
make their licensing
approvals happen faster
any of the other LP's. They
know how to cross their t's
and dot their i's just the way
Health Canada needs to
See them.
Even once Phase 1 of Aurora Sky is operational, they will have a steep learning curve on how to operate this facility to maximize quality of product, efficiency and yield. Right now it’s an idea. Once it’s built it’ll be an ongoing experiment. It’s one thing to say "this'll be the most advanced and automated MJ facility in the world", but it's entirely another to make it all work. All of this will be a serious challenge for ACB moving forward.
CGC now has vastly greater experience growing in multiple platforms. They are also much more balanced in their current overall capacity with 350 000 greenhouse and 300 000 indoor, and seem to recognize (or be banking on the fact) that there will always be a large demand for indoor grown flower. As we haven't heard yet about their plans for expansion to meet rec demand, it is all speculation at this point how they will move forward from a platform perspective. There are many arguments to be made pro and con for "purely indoor" vs "purely outdoor" and everything in between, but i would think there are people at CGC who’s jobs are wearing out calculators figuring out what the optimal balance will be, and they will execute this plan from a much more educated and data driven perspective than ACB has, again in my opinion.
Location:
ACB is an Alberta company. They have moved into Quebec in small way with a late stage applicant. They haven't shown any signs of international aspirations, that i know of. Alberta has cheaper power rates than Ontario.
CGC has a very large footprint in Ontario, and a more substantial toe in the door in Quebec with Vert. They have Goldman looking at properties all over Canada, and one would think we'll be hearing real news shortly about where they will be locating their facilities. Whether or not there is a benefit to geographical diversity here will be somewhat dependent on how distribution channels play out. As far as power costs etc are concerned, until we know more about Canopy's plans it's premature to speculate about this metric. CGC already has an international presence in Germany, Australia and Brazil. They purchased a distributor in Germany and have high hopes for prospects in that country.
People:
This is almost entirely subjective and anecdotal, but CGC appears to be making a huge investment in people, which is ostensibly a substantial proportion of their operational expenditures. From my perspective, this is as or more important than physical infrastructure. I believe corporate culture and morale is more telling about the future success of an enterprise than any nitpicking financial analysis, especially at this early point in the game. Anecdotally, at least, Canopy has that "it" factor that draws the talented, enthusiastic and creative personalities that are the real basis of any organization. From most accounts i've heard, people are very excited by the opportunities working for CGC presents. I'll be honest here and say i stopped following ACB in a detailed way some time ago, so i can't speak at all to it's corporate culture. I actually really like Terry Booth, he may not be well suited to his position as time goes on, but there are many great people in that organization.
Branding, Social Media Innovation etc:
I think both companies have strong branding. They have very different but well done and easily navigable web presences, in my mind. Aurora was first with their app, CGC/Tweed hasn’t come out with one yet, but i suspect there must be something in the works here. CGC is more diversified from a brand perspective with Snoop, DNA, Mettrum and Bedro. It could be argued that Aurora’s branding is more “streamlined” and simple, but that all depends on what you value. Both make a real effort to address concerns on Facebook etc
Product Quality and Diversity:
Both companies are evidently striving for a high degree of quality and are improving all the time (based on my reading of reviews etc) Both get panned for lack of product, but that is industry wide right now. Aurora doesn’t cold-pasteurize, CGC pasteurizes a good portion of their product. Again, there are pros and cons to both approaches that can be argued ad nauseum. I suspect as time goes on true “medical" MJ may require more pasteurization to meet stricter pharmaceutical grade standards and more fully eliminate any possibility of moulds etc that may compromise weakened immune systems with the truly chronically ill.
CGC is equipped and will soon be licensed to sell gel caps.
Hemp:
Provides an alternative method of developing brand awareness as well as another revenue stream which may become quite substantial as time goes on.
ACB - None as yet
CGC - Mettrum Originals as well as Verts hemp license in Quebec and Hemp.ca domain
Bottom Line:
From my perspective, ACB is currently demonstrably very far behind CGC in almost every aspect. I worry about the next year for them in particular as revenues plateau but the need for more dilutive financing continues, which they can ill afford. Regardless of how or when rec rolls out CGC revenues will continue to grow at an impressive pace based on domestic medical sales alone. Factor in a healthy growing market in Germany and elsewhere, and i see them far outstripping ACB in fundamentals for the foreseeable future.
GLTA