Video Summary: Is the winning cannabis business model starting to emerge?

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Here is the video summary of the August 26th INK Morning report where we compare insider activity at Canopy Growth (WEED) to Auxly Cannabis Group (XLY) and suggest it may tell us something about which business model is stronger.

As a reminder, INK Research and Canadian Insider are both subscriber-supported. We do not accept payments from issuers or promoters for stock coverage.

 

Script (check against delivery):

Last week, we saw some officer selling at Canopy Growth (WEED) and some CFO buying in much smaller Auxly Cannabis Group (XLY).

For the most recent quarter, both companies reported a drop in free cash flow per share over a trailing 12-month basis as investments continued to ramp up.

So, what might explain the relative optimism of Auxly insiders?

It may come down to different business models. Canopy is geared towards the wholesale market and has made big investments to supply the broad Canadian market. However, that focus may leave it vulnerable to commoditization of its core business.

In contrast, Auxly invested in cultivation facilities and agreements as part of a strategy to secure supply for its consumer products. The company is now prioritizing product and brand development. In July, UK-based cigarette maker Imperial Brands announced plans to invest about $123 million into the company. As part of the deal Auxly would get access to Imperial's vaping business and an exclusive development partnership for cannabis products globally.

The partnership with a tobacco company also contrasts to Canopy which received an investment from alcohol drinks maker Constellation Brands some time ago.

In terms of business models, it seems, cannabis insiders may be happier when focusing on product over produce. Choosing the right dance partner may also help determine if a Canadian cannabis stock has a shot at becoming the life of the global pot party.

Our report which is not a recommendation to buy or sell securities is available through INKResearch.com or the Canadian Insider Club.  Good luck friends and thanks for listening!

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