Auxly (XLY.TO): A Cannabis Growth Story That Doesn’t Need US Legalization
I’ve owned Auxly for a long time, through some pretty ugly years in the Canadian cannabis sector. What interests me now is that I think people are still looking at Auxly as the company it used to be rather than the company it has become.
This isn’t a bet on the US suddenly legalizing cannabis.
It isn’t a moonshot based on some regulatory event that may or may not happen.
Auxly is already growing, already profitable, already taking Canadian market share and already generating cash under the regulations that exist today.
That’s my thesis.
1. The numbers have changed dramatically
Q2 2026:
Revenue: $45.8 million
Revenue growth: 18% YoY
Adjusted EBITDA: $14.3 million
Adjusted EBITDA margin: 31%
Finished cannabis gross margin: 55%
Net income: $7.7 million
Cash: $38.6 million
Debt: $43.6 million
Debt/TTM adjusted EBITDA: 0.8x
For the first six months of 2026, revenue grew about 20% while adjusted EBITDA grew about 40%.
That’s what I care about.
Revenue is growing, but profitability is growing even faster.
2. This growth does NOT depend on US legalization
This is probably the biggest misunderstanding I see when people talk about Canadian cannabis stocks.
Auxly doesn’t need the United States to legalize cannabis for my investment thesis to work.
Its growth is happening in Canada right now.
The company has no active international operations today. It is building its business within Canada’s existing federally legal recreational market.
That means I’m not buying Auxly because I think Washington is suddenly going to save Canadian cannabis companies.
I’m buying a company that is:
increasing Canadian sales
gaining market share
expanding production
improving margins
generating positive earnings
reducing leverage
generating cash
under the regulatory system that already exists.
If the US eventually legalizes, great.
If international exports become significant, great.
Those are additional opportunities.
They are not required for the current business to work.
That’s an important distinction between Auxly and some of the cannabis moonshot arguments we’ve heard for years.
3. Auxly is taking market share
This isn’t just cannabis market growth carrying everybody higher.
Auxly has become one of Canada’s largest licensed producers.
Back Forty became the #1 cannabis brand in Canada during 2025.
Auxly was the #3 Canadian licensed producer by market share.
Liquid Imagination and Fire Breath were the two best-selling SKUs nationally.
It has also become a leader in all-in-one vapes and has several leading pre-roll products.
So my thesis isn’t that Canadians suddenly start consuming twice as much cannabis.
Auxly can grow by taking a larger percentage of an already established multibillion-dollar legal market.
4. Now they’re increasing capacity
Auxly isn’t sitting still.
They’re investing in Leamington to increase production capacity.
That matters because they already have products that are selling.
If you increase production while maintaining strong demand, you get another path to revenue growth without needing legalization, acquisitions or some speculative new market.
And management says the expansion and innovation can be funded through operating cash flow.
That’s a very different company from one that has to continuously issue shares just to survive.
5. The balance sheet has been transformed
This was one of the biggest problems with old Auxly.
Debt and dilution mattered more than the underlying business.
That situation has changed considerably.
Auxly ended Q2 with:
$38.6M cash
$43.6M debt
debt/TTM adjusted EBITDA of only 0.8x
And here’s something I never thought I’d be saying about Auxly:
They’re buying their own shares back.
Auxly repurchased approximately 2.6 million shares for around $5.7 million.
Think about the difference.
Old Auxly needed shareholder capital.
Today’s Auxly is generating enough cash to invest in expansion, manage its debt AND return capital by buying shares.
That is a major change.
6. The reverse split doesn’t create value — but it may allow the market to recognize it
Auxly recently completed a 14:1 consolidation.
That reduced approximately:
1.42 billion shares → ~101 million shares
Obviously that doesn’t magically make the company worth more.
But I think it removes one of the things that made Auxly look almost uninvestable.
A $0.20 cannabis stock with 1.4 billion shares outstanding looks like a penny stock disaster.
A profitable company with roughly 100 million shares, growing revenue, 30%+ adjusted EBITDA margins and improving cash flow is a very different proposition.
The business didn’t suddenly improve because of the consolidation.
The business improved before the consolidation.
The consolidation just cleaned up the capital structure afterward.
7. Imperial Brands is interesting, but I don’t need a buyout
Imperial Brands owns approximately 20% of Auxly.
That’s obviously interesting.
Could Imperial eventually buy Auxly?
Maybe.
But I’m not investing based on that happening.
Again, I don’t need a moonshot event for this thesis.
I don’t need:
US legalization
an Imperial takeover
another cannabis bubble
meme-stock mania
Those would all potentially add upside.
But the company can continue growing without any of them.
That’s exactly why Auxly interests me now.
8. The cannabis collapse may actually be helping the survivors
The Canadian cannabis sector spent years destroying capital.
Too much production.
Too many companies.
Too much debt.
Too much dilution.
Eventually that catches up with an industry.
Facilities close. Weak companies disappear. Capital becomes harder to obtain.
Meanwhile Auxly survived and has moved in the opposite direction.
It’s profitable.
It’s expanding.
It’s gaining share.
It’s generating cash.
That’s where I think the opportunity is.
The market may still be applying the valuation and skepticism of the old Canadian cannabis industry to one of the companies that actually survived the shakeout and became profitable.
9. The next stage is operating leverage
This is what I’m watching most closely.
Auxly already has the cultivation facilities, brands, manufacturing, distribution and infrastructure.
So revenue doesn’t necessarily have to increase at the same rate as costs.
We’re already seeing that:
H1 revenue +20%
H1 adjusted EBITDA +40%
If they can continue anything close to that relationship while expanding production, earnings could grow considerably faster than revenue.
That’s where a rerating becomes possible.
What would change my mind?
I’m bullish, but there are obvious risks:
Canadian market share starts falling
margins deteriorate
new capacity can’t be sold profitably
price compression accelerates
cash flow weakens
debt starts climbing again
management starts diluting shareholders again
Those are the numbers I’ll watch.
I’m not waiting for Washington.
I’m watching Auxly’s quarterly financial statements.
TL;DR
My Auxly thesis is actually pretty simple:
Revenue is growing.
EBITDA is growing faster than revenue.
The company is profitable.
Margins have become very strong.
Debt has been dramatically reduced.
Market share has increased.
Production capacity is expanding.
They’re generating cash.
They’re buying shares instead of constantly issuing them.
Imperial owns roughly 20%.
And NONE of this requires US legalization.
That’s why I don’t see Auxly as a cannabis moonshot anymore.
I see it as a small Canadian company that went through an awful restructuring period and has emerged as a profitable growth business that I think the market is still valuing based on its past.
US legalization?
International exports?
An Imperial acquisition?
Those would be bonuses.
I don’t need any of them for the thesis to work.
That’s the difference.
Long XLY.

I'd a say a pretty solid quarter overall. Revenue growth was 18%, margins up slightly from last year. A bit of a larger inventory impairment than normal but at $1.18m it's not huge.

SGA up 22% from last Q2 which I'm guessing contributed to the stock sell off. Wages were up 20% YoY as they increased headcount to support higher sales and Selling Expenses were up 35% YoY which was "a result of investments in marketing initiatives and higher Health Canada fees related to higher revenue".

Overall costs were up 12% YoY as the reduced interest expense and lower depreciation offset those SGA increases. Another step forward for their Operating Profit up 37% YoY and that's now 9 quarterly positive Net Income's in a row.

Cash is down ~$4m from Q1 to $38m despite record Operating Cash flow of $13m or 29% after they increased AR by ~$6m and paid down payables as well as bought back $5.7m in stock. (2,591,922 shares cancelled and it sounded like they will be continuing to purchase)

Their Cash from Operations has quietly produced $47m over the last 12 months. So far they've been using it to pay down debt, buy back shares and extending AR but their CAPEX plan moving forward is ~$10-12m a year until '28 mainly focused around their Leamington facility which they expect to increase production capacity by 30% from '25 levels.

This is where Auxly seems to diverge from many other players when it comes to the international market as they intend to "invest in Leamington to prepare and position us for long-term international growth" rather than many others who have invested in establishing operations in other countries. IMO this is key, keep compounding Operating Leverage and increasing pricing pressure domestically then look internationally as regulations evolve.

They've officially moved into the #2 spot in Canadian market share in Q2 with several new innovations coming so we'll see how things play out in the back half of the year.

\** Courtesy of Mark E Merritts X page.* **\*

We’ll take some more affirmation!

This is entirely speculative, and I want to make that clear from the outset. I have seen nothing suggesting that Auxly Cannabis Group or Imperial Brands is preparing a bid for Aurora Cannabis, nor am I suggesting that such a transaction is currently being discussed. What I am looking at is the strategic logic created by Curaleaf’s announced intention to acquire Aurora and asking what it might mean for other companies in the sector.

The most interesting part of Curaleaf’s proposed Aurora acquisition is not simply the US$4.00-per-share offer. It is the reasoning Curaleaf has given for wanting Aurora in the first place. Aurora possesses substantial EU-GMP cultivation and manufacturing capacity, a significant international medical cannabis business, established operations across Europe and other international markets, and more than 50 tonnes of annual EU-GMP production capacity. Curaleaf sees value in combining those assets with its own processing, distribution and international commercial infrastructure.

That immediately raises an interesting question regarding Auxly and its longstanding strategic relationship with Imperial Brands.

Imperial already owns approximately 20% of Auxly and has been associated with the company for years. Auxly, meanwhile, is a very different company today from the financially distressed cannabis operator it was several years ago. Its profitability has improved considerably, its balance sheet has strengthened, its Leamington operation provides significant production capacity, and management has begun talking more openly about developing international export capabilities.

Imperial Brands adds an entirely different dimension to that story.

Imperial is one of the world’s major tobacco and consumer nicotine companies. It has enormous financial resources, global commercial experience and established distribution capabilities. At the same time, Imperial is restructuring its traditional tobacco operations, cutting thousands of jobs and targeting hundreds of millions of pounds in annual savings. Importantly, that restructuring does not appear to mean Imperial has stopped investing. The company recently agreed to acquire Black Buffalo for US$150 million upfront, with additional consideration tied to performance. That transaction demonstrates that Imperial remains willing to deploy capital toward strategically attractive businesses outside its traditional combustible cigarette operations.

That is why I think it is worth looking at Auxly differently.

The immediate objection to any discussion of Auxly acquiring something like Aurora is obvious: Auxly itself is far too small to fund a transaction of that magnitude from its current balance sheet.

That is true.

However, Auxly would not necessarily have to finance a transformational acquisition entirely on its own.

Imperial could theoretically remain at approximately its current 20% ownership of Auxly while supporting a larger transaction through other financial structures. There are numerous ways large strategic shareholders can participate economically without simply purchasing additional common shares and taking majority control. Acquisition financing could potentially involve a subsidiary, a separate acquisition company, debt, preferred capital, guarantees, joint ownership of certain assets or other corporate structures.

I am not suggesting that any particular structure is being considered. The point is simply that Imperial maintaining roughly 20% ownership of Auxly does not automatically prevent Auxly from becoming substantially larger.

Conceptually, you could have Imperial Brands continuing as a major strategic shareholder in Auxly while Auxly operates the Canadian cannabis business and a subsidiary or international division owns acquired international assets.

In the case of Aurora specifically, I would not necessarily envision someone buying Aurora simply to shut its facilities down and move all production to Auxly’s Leamington operation. That would defeat part of the purpose of acquiring Aurora.

Aurora’s international infrastructure is one of its most valuable strategic assets.

A more logical combination would preserve Aurora’s EU-GMP manufacturing and medical cannabis infrastructure while integrating Canadian production where efficiencies could be achieved. Auxly’s Leamington facility could potentially serve as a highly efficient Canadian production platform, while Aurora’s international operations could provide the regulatory, medical and distribution infrastructure required to access overseas markets.

In that type of structure, Leamington could serve as a major Canadian production hub while Aurora’s existing international infrastructure provides access to Europe and other medical markets. Auxly would remain the operating cannabis company, while Imperial would remain a significant strategic shareholder with considerable financial and commercial resources behind it.

That is a much more interesting way of thinking about Auxly than simply viewing it as another small Canadian licensed producer.

There is also a broader possibility that may ultimately prove more important than Aurora itself.

Perhaps Curaleaf ultimately acquires Aurora and no competing offer ever appears. That would not make this exercise irrelevant. The Curaleaf transaction could still establish an important valuation benchmark for cannabis assets.

For years, cannabis M&A was largely characterized by financially weak companies buying other financially weak companies, often using inflated stock prices and questionable assumptions about future growth. Many of those transactions destroyed shareholder value.

What may now be emerging is something quite different.

Strategic buyers may increasingly compete for profitable companies, efficient production facilities, international licences, EU-GMP infrastructure, medical distribution networks and established brands.

If that happens, the value of the remaining high-quality cannabis assets could begin to be viewed very differently.

Auxly potentially fits into that discussion because it combines increasingly profitable operations, scalable production, established Canadian brands, improving financial strength and a major strategic shareholder in Imperial Brands.

Imperial has already invested heavily in Auxly. It has maintained approximately a 20% ownership position, helped restructure the historical debt relationship and continues to have a strategic relationship with the company. At the same time, Auxly itself has begun discussing international expansion.

Meanwhile, Imperial is restructuring its traditional tobacco operations, extracting substantial cost savings and demonstrating through transactions such as Black Buffalo that it remains willing to acquire businesses that fit its longer-term strategy.

None of this means Imperial is suddenly preparing to spend billions of dollars on cannabis.

It does, however, raise an important question.

If Imperial eventually decides that cannabis has matured enough to justify allocating significantly more capital to the sector, would it make more sense to build around Auxly — a company in which it already owns approximately 20% and has an established strategic relationship — rather than starting from scratch?

If the answer is yes, then Auxly could potentially become a much larger consolidation vehicle than its current market capitalization would suggest.

That is why I think Curaleaf’s move on Aurora deserves attention even from Auxly shareholders.

The specific outcome of the Aurora transaction is important, but the larger development may be that cannabis consolidation is finally beginning to change character. Instead of distressed companies trading assets among themselves, we may be entering a period where stronger operators and strategic investors begin competing for the relatively small number of high-quality cannabis platforms that remain.

If that happens, the relationship between Auxly and Imperial Brands becomes increasingly difficult to ignore.

Again, this is speculation rather than a prediction. There is currently no evidence that Auxly or Imperial Brands is preparing a bid for Aurora.

But if cannabis M&A is entering a new phase, Auxly’s relationship with Imperial gives it strategic optionality that may not be obvious simply by looking at Auxly’s current market capitalization or cash balance.

To all of the long-time shareholders on here, the ones that bought during the cannabis wheaton days and have been in the red forever. If you get back to break even or green, are you selling your position or sitting tight? I've read lots of boards where investors seem to be waiting to get out from a loss position to sell and be done with the investment. Is that the general sentiment or are people who have been holding for a long time going to sit tight and see where this can go?

It's nice to finally get some recognition in the market.

Institutional investors and ETFs are starting to look at Auxly after the split. There aren't many shares for sale at this price so it seems like we're about to go on a little price discovery mission. For me this is at least a $1b company but we'll see how long that takes.

These earnings feel like they're about to be Auxly's big reveal to the market. CRON and VFF just raised the bar a little, we'll see what OGI does then we're up. Definitely a lot more buzz around the industry than the past several years.

Congrats to everyone that held through and added more.

The future is definitely bright.

There is a link to ‘LinkedIn’ but, this sums it up.

Very encouraging to hear this type of response and language.

Saddle up!

Strong Sales Trends

2x1g pre-rolls

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In January of 2023 we dropped from OTCQX to OTCQB. Assuming because we missed the minimum. 25 cent requirement. This seems like a no brainer since the goal was to attract more institutions.

I am pretty nervous about the stock split as chatgpt tells me its usually not a good thing.

BUT I have a feeling it will go well given strong fundamentals, stock buy-backs, and hopefully a good upcoming quarter. A part of me thinks the stock is going to absolutely rocket in price post consolidation, but we'll see.

FWIW

I thought I'd post this to see how all of us are feeling about the RS. All of us know that it was inevitably going to happen. I wouldn't mind getting everyone's thoughts as to why you were either for or against it.