Legalization 2.0 to Send This $0.53 Pot Stock Soaring?

Auxly Cannabis Group Inc Could Deliver Big Returns

Canada legalized recreational marijuana in October 2018, but that was just a start. In October 2019, the second wave of legalization (also known as Legalization 2.0) came into effect.

This second wave of legalization includes cannabis derivatives such as edibles, beverages, extracts, and vape pens. While these products won’t legally hit store shelves until December, Legalization 2.0 has certainly given investors a new reason to check out some pot stocks.

And that’s why today, I want to talk to you about Auxly Cannabis Group Inc (OTCMKTS:CBWTF, CVE:XLY).

As you can see from its ticker symbol, Auxly doesn’t trade on a major U.S. stock exchange. In Canada, the company is listed on the TSX Venture Exchange. American investors, however, can find CBWTF stock over the counter.

Still, while Auxly doesn’t seem like a big player in the cannabis industry, it is well positioned to capitalize on Legalization 2.0.

The company recently announced that two of its wholly-owned subsidiaries, Dosecann Inc. and Kolab Project Inc., received amendments to their licenses from Health Canada. (Source: “Auxly Receives Licences to Sell Cannabis Extracts, Edibles and Topicals; Submits New Product Notifications for More Than 80 Cannabis Product SKUs to Health Canada,” GlobeNewswire, October 24, 2019.)

With these amendments, Dosecann and Kolab are authorized to sell cannabis extracts, edibles, and topical products in Canada.

At the same time, Auxly Cannabis Group Inc has submitted 83 unique product stock keeping units (SKUs) to Health Canada for approval. The company intends to start selling these new products, which include vapes, chewables, and chocolates, in mid-December.

Note that these new SKUs will be additions to Auxly’s current product lineup. The company already has a portfolio of cannabis derivatives authorized for sale, such as oil-based sprayable and capsule products.

“These amendments and notifications are necessary regulatory milestones that must be achieved by any company wishing to sell derivative cannabis products when the 2.0 market begins later this year,” said Auxly’s Chief Executive Officer Hugo Alves.

He continued:

Having successfully achieved these milestones, Auxly is able to launch its portfolio of branded cannabis products as soon as legally permitted by the regulations. This is an important step in executing our route-to-market strategy and introducing Canadian consumers to our incredible products.

(Source: Ibid.)

And I’m not the only one who noticed Auxly’s potential in the cannabis business.

Back in July, it was reported that tobacco giant Imperial Brands plc (OTCMKTS:IMBBY, LON:IMB) would invest CA$123.0 million in Auxly Cannabis Group Inc. (Source: “Auxly Closes C$123 Million Investment and R&D Partnership with Imperial Brands and Strengthens its Board,” GlobeNewswire, September 25, 2019.)

On September 25, Auxly Cannabis announced the completion of that transaction. The investment, which was in the form of a debenture, is convertible into 19.9% ownership of Auxly.

And this is more than just an one-way investment. Imperial Brands and Auxley also formed a partnership, which looks like a win-win situation.

On one hand, Auxly now has access to the tobacco giant’s vaping technology and its vapor innovation business Nerudia. On the other hand, Imperial will use Auxly as its exclusive global partner for future development of pot products.

Imperial Brands plc’s Corporate Development Director Conrad Tate called Auxly “a dynamic, highly skilled organization that has all the ingredients required for delivering success in the branded derivatives market and beyond.” (Source: Ibid.)

Auxly Cannabis Group Inc (OTCMKTS:CBWTF) Stock Chart

Chart courtesy of StockCharts.com

Analyst Take

According to a survey conducted by Lift & Co. and Ernst & Young, the legalization of cannabis-derivative products in Canada could increase the number of adult marijuana users in the country from 4.6 million to about 7.6 million, representing a 65% market expansion. (Source: “Legal edibles, other derivatives should add 3 million consumers to cannabis market,” Calgary Herald, September 15, 2019.)

Right now, Auxly Cannabis Group Inc looks like just another low-priced pot stock. But if the company can crack open just a small percentage of the new cannabis-derivatives market, that could significantly boost its financials. At that point, Auxly Cannabis stock might be able to command a much higher share price.