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Cannabis stocks are making a comeback, no thanks to US-based medical marijuana companies. The United States Marijuana Index, a collection of 17 firms, is still languishing at 55% below its 2015 highs. The Canadian Marijuana Index, on the other hand, representing another 18 firms, is up over 300% since July and is knocking on the door of all-time highs.

Politics and regulatory regimes may be responsible for much of the disparity. The Trump Administration, Attorney General Jeff Sessions in particular, is a vocal opponent of cannabis, and the regulatory environment for the industry is much friendlier in Canada generally. Another meaningful regulatory turn in the US could take a long time, considering Trump still has at least three years to go in office.

In Canada, the industry is already taking off. Though the sector there is near all-time highs, most companies are still small to mid-caps whose business models and growing capacity are only now just starting to take hold.

Here are three Canadian cannabis ADRs breaking out and now expanding that deserve a second look.

CanniMed

CanniMed Therapeutics Inc. (OTCMKTS: CMMDF) is at center stage of a roll-up triangle drama involving itself, Aurora Cannabis Inc. (OTCMKTS: ACBFF), and Newstrike Resources Ltd. (OTCMKTS: NWKRF). CanniMed trades principally on the Toronto Stock Exchange though an over the counter ADR for US investors has been available since October. Shares have jumped 38% since November 14 when Aurora made an unsolicited offer for CanniMed for up to $24 a share.

CanniMed responded by saying it was considering the offer, but in the meantime it was doing its own roll-up and acquiring Newstrike and its brand Up Cannabis in an all-stock transaction.

CanniMed’s finances have robustly improved since last year, with revenue up 80% year over year for the third quarter, cash position up to $54M from $2M, and debt down 62%. It has a growing capacity of 7,000kg annually with 10 to 12,000kg more capacity in store by 2019.

CanniMed has been working with the Canadian government on medical cannabis cultivation since 2001, with subsidies from Health Canada on its greenhouse operations. The company is at the top of the regulatory food chain for the Canadian cannabis industry, giving it a significant competitive advantage over newer market entrants.

If CanniMed’s board is merely considering a $24 offer from the current price of $19.32, the chances of a revaluation to at or near that level if and when a deal closes are decent.

Emerald Health

Emerald Health Therapeutics Inc. (OTCMKTS: EMHTF) trades chiefly on the Toronto Venture Exchange with an ADR for US investors available since June. Shares are up 26% since November 13 when, concurrent with the flurry of news involving CanniMed, Emerald announced a positive Health Canada review of its Licensed Producer Application.

The growing facility under review is called Pure Sunfarms, a 1.1 million-square-foot greenhouse. Of that, 250,000 is being converted from tomato growing and will be ready for cannabis cultivation by early 2018. The facility, at full capacity, is considerably larger than CanniMed’s and is expected to yield 75,000kg annually once fully converted. Additionally, Emerald, through its partner on the project, has the option to acquire two more greenhouses totaling 3.7 million square feet that would yield another 225,000kg per year. At full capacity, Emerald has the theoretical ability to grow the herb at less than $1 per gram.

If its plan is successful, Emerald could become one of Canada’s biggest cannabis producers, despite now being only a midsize company in comparison to its peers.

Aphria

Aphria Inc. (OTCMKTS: APHQF) is one of the few cannabis stocks in the world to break the $1B market cap barrier. The main thing that it is has going for it above other cannabis companies is that it is actually profitable for more than just an isolated quarter. Earnings skyrocketed last quarter, increasing by a factor of nearly 17x to over $15M. It is the first licensed cannabis producer to report positive earnings in consecutive quarters.

Aphria’s growing capacity is currently about 9,000kg annually, but expansion plans are in place that will see it increase by nearly 100,000kg – an order of magnitude – by 2019. This puts it on par with Emerald in terms of near-term capacity, and production costs are just above $1 a gram already.

Keep in mind that the current breakout in Canadian cannabis stocks is occurring before much of the Canadian growing capacity has been put online. The potential for growth from here, literally and financially, is clear if there are no serious regulatory hurdles through the end of the decade.

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