The world is abuzz once again with interest in cannabis stocks thanks to the continuing legislative momentum of critical bills now making their way through Congress.
The Marijuana Opportunity, Reinvestment and Expungement Act (the “MORE Act”) is a bill sponsored by House Judiciary Committee Chairman Jerrold Nadler (D-NY) that is up for a vote to clear the United States House of Representatives as early as this week.
The bill essentially aims to remove cannabis from the list of federally controlled substances, which could open the door for true federal legalization of cannabis in the United States. However, the bill would not require states to legalize cannabis but would leave regulatory discretion up to states.
At the same time, the Secure and Fair Enforcement (SAFE) Banking Act (H.R. 1996), sponsored by Rep. Ed Perlmutter (D-CO), is now up for consideration in the Senate with a version that was reintroduced on March 23, 2021, and is sponsored by Sens. Jeff Merkley (D-OR) and Steve Daines (R-MT), with 180 current cosponsors.
The SAFE Banking Act would create protections for financial institutions that provide financial services to state-legal cannabis businesses, offering small and minority-owned cannabis businesses access to banks and regulated financial services.
Together, the bills represent a potential revolution that could massively expand the legal cannabis products industry. And both are coming to a head right now.
As a result, stocks related to the cannabis theme are heating up. A positive resolution to the legislative agenda in play could add rocket fuel to the fire. With that in mind, we take a closer look at some of the most compelling stocks in the cannabis space below.
Hydrofarm Holdings Group Inc. (Nasdaq:HYFM) engages in the manufacture and distribution of controlled environment agriculture equipment and supplies. As the industry expands, this is a pick-and-shovel play that stands to benefit from a growing number of producers of different scale moving in to meet that demand.
The company offers lighting, atmospheric control, hydroponics, nutrients and additives, growing media, plant care and pest and disease control, seed starting and cloning, garden accessories, and food storage products.
Hydrofarm Holdings Group Inc. (Nasdaq:HYFM) recently announced that it has entered into an agreement with California-based AXEON Water Technologies, a leading manufacturer of water purification solutions, to distribute new lines of reverse osmosis water filtration systems and solutions for the horticultural market. The partnership between AXEON and Hydrofarm will allow for many of the nation’s top retailers and professionals to gain access to high-quality, technologically advanced purification systems and membrane filtration solutions.
“AXEON will be introducing several new reverse osmosis and filtration system designs that bring cutting-edge technologies, aesthetics and performance to growers around the world,” said Bill Toler, Chairman and Chief Executive Officer of Hydrofarm. “We’re excited to partner with the AXEON team and bring these new products to market.”
If you’re long this stock, then you’re liking how the stock has responded to the announcement. HYFM shares have been moving higher over the past week overall, pushing about 3% to the upside on above average trading volume.
Hydrofarm Holdings Group Inc. (Nasdaq:HYFM) managed to rope in revenues totaling $110.4M in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 26.3%, as compared to year-ago data in comparable terms. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($28.4M against $88.4M, respectively).
Eco Innovation Group (OTC US:ECOX) trades on the OTC and is clearly the most speculative name on our list. But the company recently transitioned from development stage to commercial stage and is already seeing strong revenue growth through its ECOX Spruce Construction subsidiary, which is in the business of refitting existing facilities to optimize around ecological footprint.
The company’s model is driven by nurturing the work of top inventors in the US and Canada, helping to bring their best green-tech ideas to life and then signing exclusive licensing deals to commercialize the results. Company communications suggest it will be launching some of its pipeline projects this year. One of the most interesting has potentially profound implications for the cannabis industry.
Eco Innovation Group (OTC US:ECOX) announced just this morning that its supercritical Glycerin Extraction Technology (“GET”), an advanced cannabis extraction system, is advancing through the United States Patent and Trademark Office (USPTO). As announced by the Company in its release dated March 17, 2022, Eco Innovation Group recently received a Notice of Allowance from the USPTO for its patent covering methods of extraction of plant materials obtained using the GET system, which has been exclusively licensed to ECOX by Glytech, LLC (“Glytech”).
“The GET system is an upgrade of the technology horizon for producing superior high-grade plant extracts with a provable reduction in costs, as well as time and energy, during the extraction process, which has enormous implications for the cannabis products industry,” stated Julia Otey-Raudes, CEO of Eco Innovation Group. “As we move toward full IP protection to accompany our exclusive license rights for this next-generation extraction technology, we believe legislative momentum is a tailwind for the cannabis industry, and we applaud lawmakers who are helping to drive progress and provide for more equity and greater access.”
Management also noted the significance of recent legislative momentum for growth in the cannabis industry as its GET system moves toward commercial launch, which is currently planned for Q4 2022 or early 2023.
The GET system’s plant extraction method promises to reduce waste from vaping cannabis and to provide better standardization of extracts in products. Unlike current technology in the marketplace, this technology utilizes a non-CO2 solvent and cofactors to extract selected bioactive compounds from plant materials. The result is an extracted fluid superior in viscosity to the output of current CO2-based extraction methods, while streamlining time, energy, and capital costs. The GET system was covered by Chemical Engineering magazine last year.
Eco Innovation Group (OTC US:ECOX) CEO Otey-Raudes added, “This technology – our exclusive technology – promises to drive larger yields with greater resource efficiency while creating more consistent, standardizable concentrations of target compounds. This consistency is a big factor. It means customers stand to get products with the same potency every time, which is not the case with current methods in use today, including supercritical CO2. We expect this technology will generate lower overhead costs to manufacturers while creating better overall yields and higher customer satisfaction. In a maturing industry with expanding reach, this is paramount.”
Innovative Industrial Properties Inc. (NYSE:IIPR) is a real estate investment trust, which engages in the acquisition, ownership, and management of industrial properties.
It operates through the following geographical segments: Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nevada, New Jeresey, New York, North Dakota, Ohio, Pennsylvania, Texas, Virginia and Washington. The firm’s property portfolio includes PharmaCann, Inc., SH Parent, Inc., Ascend Wellness Holdings, Inc., Cresco Labs Inc., and Kings Garden Inc.
Innovative Industrial Properties Inc. (NYSE:IIPR) recently announced that it closed on the acquisition of a property in New Jersey, and entered into a long-term lease with a subsidiary of Ascend Wellness Holdings, Inc. (AWH) at the property.
“We have been AWH’s long-term real estate partner since 2018, and are excited to once again expand our relationship with Abner and his team,” said Paul Smithers, President and Chief Executive Officer of IIP. “The AWH team continues to distinguish themselves in delivering the highest quality cannabis products and services to their patients and customers, and has developed a tremendous strategic footprint in some of the strongest regulated cannabis markets, including New Jersey.”
We’ve witnessed 14% tacked on to share pricing for the listing in the past month, a bounce that has taken root amid largely bearish action over the larger time frame. This is emblematic of the stock. IIPR has a track record that includes a number of dramatic bounces. In addition, the stock has seen interest climb, with an increase in recent trading volume of 5% beyond its prior sustained average level. This is particularly important with a float in play that’s tight — barely over 25M shares. This type of thing is something to watch out for: a restricted trading float and a jump in trading volume can crimp supply and push share prices higher.
Innovative Industrial Properties Inc. (NYSE:IIPR) has a significant war chest ($411.3M) of cash on the books, which compares with virtually no total current liabilities. IIPR is pulling in trailing 12-month revenues of $204.6M. However, the company is seeing declines on the top-line on a quarterly y/y basis, with revenues falling at -20.5%.
Other key stocks in the cannabis space include Green Thumb Industries Inc. (OTC US:GTBIF), Scotts Miracle-Gro Co. (NYSE:SMG), Jazz Pharmaceuticals PLC (Nasdaq:JAZZ), and OrganiGram Holdings Inc. (Nasdaq:OGI).
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