While investors know the importance of buying low and selling high, markets often get carried away with momentum when a group gets into gear on a strong growth thesis. Never has been more on display than in the cannabis stock sector over recent years.
That said, recent months and weeks are another story altogether. The space seems to be “growing up”, and valuation metrics are becoming more important every day. We took a look at a list of the leading names in the space, and found only one with a compelling valuation (MDCL). And, surprise-surprise, guess which one has been outperforming the group in recent market action…
Aphria Inc (NYSE:APHA)is a leading global cannabis company driven by “an unrelenting commitment to our people, product quality and innovation.” The stock is trading on a 56x price-to-sales ratio, which is about twice as high as the high-flying cloud internet stocks that Barron’s recently claimed to be in a bubble.
As a result, the stock has been sliding in recent action, with support in play right now in the $6/share area. Headquartered in Leamington, Ontario – the greenhouse capital of Canada – Aphria has been setting the standard for the low-cost production of safe, clean and pure pharmaceutical-grade cannabis at scale, grown in the most natural conditions possible. Focusing on untapped opportunities and backed by the latest technologies, Aphria is committed to bringing breakthrough innovation to the global cannabis market.
Possibly helping to push the action, the company just announced the launch of its cannabis education program ‘Aphria Educates’. This program is mandated to educate Canadian adults on responsible and safe use of all cannabis products legally available now and in the future.
According to the release, “The first Aphria Educates event will be a two-city educational panel in conjunction with Drugs Free Kids Canada (DFK), a Canadian non-profit organization providing parents with evidence-informed information about youth and substance use while promoting frequent, balanced parent-youth discussions about drugs. Entitled Aphria Educates with Drug Free Kids Canada, the panels will focus on furthering awareness around the potential harms of cannabis for youth and help parents navigate the ever-evolving Canadian cannabis landscape.”
The Company’s portfolio of brands is grounded in expertly-researched consumer insights designed to meet the needs of every consumer segment. “Rooted in our founders’ multi-generational expertise in commercial agriculture, Aphria drives sustainable long-term shareholder value through a diversified approach to innovation, strategic partnerships and global expansion, with a presence in more than 10 countries across 5 continents.”
While this is a clear factor, it has been incorporated into a trading tape characterized by a pretty dominant offer, which hasn’t been the type of action APHA shareholders really want to see. In total, over the past five days, shares of the stock have dropped by roughly -4% on above average trading volume. All in all, not a particularly friendly tape, but one that may ultimately present some new opportunities. Over the past month, shares of the stock have suffered from clear selling pressure, dropping by roughly -7%.
Aphria Inc (NYSE:APHA) generated sales of $128.6M, according to information released in the company’s most recent quarterly financial report. That adds up to a sequential quarter-over-quarter growth rate of 74.7% on the top line. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($571M against $138.5M).
Medicine Man Technologies Inc (OTCMKTS:MDCL)shares have been ripping higher as the company continues to pile into an aggressive M&A roll-up strategy that could spell accelerating top-line growth for the company. Right now, the stock is trading at 14x sales, which puts it solidly in a sweet spot for momentum/growth strategies.
This is likely part of why we have seen such strong mojo in the stock lately, with shares rallying as much as 30% higher so far during September alone.
The company is capitalizing on recent changes in Colorado state law (namely, passage of HB 19-1090, which will take effect on November 1, and allow for outside investors, venture capitalists and private equity firms to gain investment access to Colorado’s cannabis industry. MDCL has been a well-respected and successful advisor and consultant to firms in the cannabis industry for many years. But this shift in the legal context has created a new opportunity to consolidate production and distribution under the MDCL umbrella in a roll-up that could produce significant revenue growth for a stock that is already cheap relative to peers in the space.
Here’s the company’s CEO on the new bill: “At a time when cannabis is valued at $1.5 billion and is expected to grow to $2.1 billion by 2022 in Colorado alone, this legislation will serve to accelerate Colorado’s leadership position in the entire cannabis industry, and those entities fortunate enough to do business in our state – including our own. This was a tremendous win for the industry and for Medicine Man Technologies.”
In all, the company has entered into binding term sheet agreements to roll up some bread and butter in the Colorado cannabis marketplace, including 12 cultivation facilities, 7 proprietary extraction facilities, 7 manufacturers of infused products, 33 strategically located retail dispensaries, and a state-of-the-art manufacturing, research and development lab that represents Colorado’s first and only active cannabis research license in the state.
Hexo Corp (NYSE:HEXO)shares have been hurting. If you’re long this stock, then you’re liking how the stock has responded over the very short time frame. But looking further back, it has been a long time since shareholders have enjoyed the topside of the 200-day moving average.
Even after this culling in price, the stock is still the most overvalued name in the group, trading at 267x sales.
To help try and mitigate the pain, the company recently announced that its very own Master Grower, Agnes Kwasniewska, was named the first ever Master Grower of the Year at the Grow Up Conference and Expo Awards.
According to the release, “Agnes brings a decade of experience in plant science and horticulture to her role as HEXO’s Master Grower. Prior to joining HEXO, Agnes was a former researcher at Agriculture and Agri-Food Canada, worked as an assistant researcher and field monitor at PRISME Consortium, and was assistant grower at Flora Plus Inc., where she oversaw propagation, environmental systems, integrated pest management and R&D. She holds a Master of Science degree from McGill University, and has authored specialized research on integrated pest control.”
Hexo Corp (NYSE:HEXO) bills itself as an award-winning consumer packaged goods cannabis company that creates and distributes innovative products to serve the global cannabis market. Through its hub and spoke business strategy, HEXO Corp is partnering with Fortune 500 companies, bringing its brand value, cannabinoid isolation technology, licensed infrastructure and regulatory expertise to established companies, leveraging their distribution networks and capacity. As one of the largest licensed cannabis companies in Canada, HEXO Corp operates with 2.4 million sq. ft of facilities in Ontario and Quebec.
The Company is also expanding internationally and has a foothold in Greece to establish a Eurozone processing, production and distribution centre. The Company serves the Canadian adult-use markets under its HEXO Cannabis and Up Cannabis brands, and the medical market under HEXO medical cannabis.
Hexo Corp (NYSE:HEXO) managed to rope in revenues totaling $13M in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 949.6%, as compared to year-ago data in comparable terms. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($188.8M against $47.4M).
In addition, the biggest names in the space, ACB and CGC, have been sliding down from sky-high multiples.
Aurora Cannabis Inc (NYSE:ACB)has had a rough past week of trading action, with shares sinking something like -7% in that time. That said, chart support is nearby and we may be in the process of constructing a nice setup for some movement back the other way.
But, as for valuation, the stock is trading at 96x sales, or about 7 times as expensive as MDCL.
Aurora Cannabis Inc (NYSE:ACB) is one of the most widely diversified players in the cannabis space due to its powerful strategic investments.
In addition, the company has demonstrated rapid organic growth and strong execution on strategic M&A, which to date includes 15 companies – MedReleaf, CanvasRX, Peloton Pharmaceutical, Aurora Deutschland (formerly Pedanios), H2 Biopharma, Urban Cultivator, BC Northern Lights, Larssen Greenhouses, CanniMed Therapeutics, Anandia Labs, HotHouse Consulting, Agropro, Borela, and the pending acquisition of ICC Labs.
We would also note that the company has invested in and established strategic partnerships with a range of leading innovators, including: The Green Organic Dutchman Holdings Ltd. (TSX: TGOD), Radient Technologies Inc. (TSXV: RTI), Hempco Food and Fiber Inc. (TSXV: HEMP), Cann Group Ltd. (ASX: CAN), Micron Waste Technologies Inc. (CSE: MWM), Choom Holdings Inc. (CSE: CHOO), Namaste Technologies Inc. (TSXV: N), Evio Beauty Group (private), Wagner Dimas (private), CTT Pharmaceuticals (OTCC: CTTH), and Alcanna Inc. (TSX: CLIQ).
Aurora Cannabis Inc (NYSE:ACB) pulled in sales of $98.9M in its last reported quarterly financials, representing top line growth of 416.7%. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($362M against $436.4M, respectively).
Canopy Growth Corp (NYSE:CGC)engages in growing, possession, and sale of medical cannabis in Canada. Its products include dried flowers, oils and concentrates, softgel capsules, and hemps.
The stock has also been having a rough go of late. And why not? If we are seeing a rotation to a value-based thesis in the sector, then its lofty 113x sales multiple isn’t helping matters right now.
Canopy Growth Corp (NYSE:CGC) pulled in sales of $90.5M in its last reported quarterly financials, representing top line growth of 249.1%. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($3.2B against $372.8M).
According to its own materials, the company offers its products under the Tweed, Black Label, Spectrum Cannabis, DNA Genetics, Leafs By Snoop, Bedrocan Canada, CraftGrow, and Foria brand names. It also offers its products through Tweed Main Street, a single online platform that enables registered patients to purchase medicinal cannabis from various producers across various brands.
In the company’s words, “Canopy Growth is a world-leading diversified cannabis and hemp company, offering distinct brands and curated cannabis varieties in dried, oil and Softgel capsule forms. From product and process innovation to market execution, Canopy Growth is driven by a passion for leadership and a commitment to building a world-class cannabis company one product, site and country at a time.”
This is also one of the most geographically diversified players in the cannabis space, with operations in 12 countries across five continents.
And there has been plenty of PR work here. The Company is proudly dedicated to educating healthcare practitioners, conducting robust clinical research, and furthering the public’s understanding of cannabis, and through its partly owned subsidiary, Canopy Health Innovations, has devoted millions of dollars toward cutting edge, commercializable research and IP development. Through partly owned subsidiary Canopy Rivers Corporation, the Company is providing resources and investment to new market entrants and building a portfolio of stable investments in the sector.
One of its most important divestitures and strategic interests is Canopy Rivers Inc., a unique investment and operating platform structured to pursue investment opportunities in the emerging global cannabis sector. The company works collaboratively with Canopy Growth to identify strategic counterparties seeking financial and/or operating support.
The company has developed an investment ecosystem of complementary cannabis operating companies that represent various segments of the value chain across the emerging cannabis sector. As the portfolio continues to develop, constituents will be provided with opportunities to work with Canopy Growth and collaborate among themselves, which the company believes will maximize value for its shareholders and foster an environment of innovation, synergy and value creation for the entire ecosystem.