As the Cannabis space continues to mature, we find ourselves with an “old guard” and a crop of young upstarts racing to steal the torch of leadership away. Given the sharp underperformance of the old guard in recent months, one wonders if the big money in the space has already started to shift its focus. There are valuation and strategy issues to think about as we size this dynamic up for analysis.
First off, we know who the old guard is at this point. We’re talking about the likes of Canopy Growth Corp (NYSE:CGC), Aurora Cannabis Inc (NYSE:ACB), and Tilray Inc (NASDAQ:TLRY), among others.
Together, these stocks have been dreadful performers in 2019, and valuations are still not exactly enticing. Margin pressure has been the name of the game.
That’s why we are starting to look at what we are referring to as: “The Future Stars of the Cannabis Investment Theme”. After all, the notion of overall cannabis industry growth is still completely intact. It’s just a shift in where capital productivity lies.
Today, we will look at four interesting prospects: GrowGeneration Corp. (NASDAQ:GRWG), Curaleaf Holdings Inc (OTCMKTS:CURLF), Sugarmade, Inc. (OTCQB:SGMD), and Trulieve Cannabis Corp (OTCMKTS:TCNNF).
GrowGeneration Corp (OTCMKTS:GRWG) is an up-and-comer that is defined by its pick-and-shovel angle on this theme. The company is seeing accelerating growth just as the cultivators are seeing tightening margins. This is a hydroponics player, so it’s able to capitalize the growth in demand and supply.
The company just announced that its common shares have been approved for listing on the Nasdaq Capital Market. GrowGeneration Corp. common shares will begin trading on NASDAQ on December 2, 2019 under the trading ticker symbol “GRWG.”
“This up-listing to NASDAQ is a major corporate milestone and reflects the financial performance of our Company. As the premier hydroponic supplier in the country, we continue to focus on expanding the number of garden centers, increasing our commercial portfolio of customers, focusing on the cutting-edge products, while expanding revenue and EBITDA. We believe our NASDAQ listing will increase long-term shareholder value by improving awareness, liquidity, and appeal to institutional investors” said Darren Lampert, CEO of GrowGeneration Corp.
GrowGeneration Corp (OTCMKTS:GRWG) trumpets itself as a company that owns and operates retail hydroponic and organic gardening stores in the United States.
It offers horticultural, organics, and lighting and hydroponics products, including lighting fixtures, nutrients, seeds and growing media, systems, trays, fans, filters, humidifiers and dehumidifiers, timers, instruments, water pumps, irrigation supplies, and hand tools.
The company serves commercial and urban cultivators growing specialty crops, including organics, greens, and plant-based medicines. As of September 10, 2019, it operated 25 stores, including 5 locations in Colorado, 4 locations in California, 2 locations in Nevada, 1 location in Washington, 4 locations in Michigan, 1 location in Rhode Island, 4 locations in Oklahoma, 1 in New Hampshire, and 3 locations in Maine.
GrowGen also operates an online superstore for cultivators, located at HeavyGardens.com. GrowGen carries and sells thousands of products, including organic nutrients and soils, advanced lighting technology and state of the art hydroponic equipment to be used indoors and outdoors by commercial and home growers.
According to company materials, “Our mission is to own and operate GrowGeneration branded stores in all the major states in the U.S. and Canada. Management estimates that roughly 1,000 hydroponic stores are in operation in the U.S. By 2020 the market is estimated to reach over $23 billion with a compound annual growth.”
The stock has been acting well over recent days, up something like 12% in that time. Shares of the stock have powered higher over the past month, rallying roughly 7% in that time on strong overall action.
GrowGeneration Corp (OTCMKTS:GRWG) managed to rope in revenues totaling $21.8M in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 159.1%, 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 ($16M against $9.5M).
Curaleaf Holdings Inc (OTCMKTS:CURLF) is increasingly well-known, but continues to have a feel of an “under the radar” name compared to the Old Guard players in the space, despite existing on a scale that actually supersedes some of the more recognizable names – ie, it may surprise you to know that CURLF surpassed TLRY in sales last quarter by over 25%!
As a result, CURLF shares are in a very select group being one of just a handful of pot stocks to actually post gains in 2019 – a year that has featured devastating losses for most stocks in the space.
Overall, the company roped in revenues of $64.9M during its most recently reported quarterly financial data. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($140.3M against $64.1M).
To continue its strong momentum, CURLF recently announced it will launch its custom-designed Veterans Cannabis Project pre-roll product in Florida today. According to the release, a portion of all proceeds will benefit the Veterans Cannabis Project (VCP), an organization that advocates for legal and supported access of medical cannabis for veterans through the Department of Veterans Affairs. In Florida the boxes will be available for $26, and each box contains five 0.4 oz pre-rolls for a total of 2 grams per box.
“We are proud to launch the Veterans Cannabis Project initiative in Florida to provide additional support and education for veterans in the communities we serve,” said Pablo Arizmendi-Kalb, President of Curaleaf Florida. “Through this partnership with the Veterans Cannabis Project, we hope to increase awareness for veteran access to medical cannabis.”
Curaleaf Holdings Inc (OTCMKTS:CURLF) operates a large number of dispensaries, 12 cultivation sites and 9 processing sites with a focus on highly populated, limited license states, including Florida, Massachusetts, New Jersey and New York. Curaleaf, Inc. leverages its extensive research and development capabilities to distribute cannabis products in multiple formats with the highest standard for safety, effectiveness, consistent quality and customer care. Curaleaf is committed to being the industry’s leading resource in education and advancement through research and advocacy.
Sugarmade Inc (OTCMKTS:SGMD) is another example – like GRWG above – of a company positioned to actually benefit from the inevitable margin pinch that has been punishing the “old guard” cannabis cultivators, like Canopy Growth Corp (NYSE:CGC), Aurora Cannabis Inc (NYSE:ACB), and Tilray Inc (NASDAQ:TLRY). As those companies suffer from droves of other growers popping up everywhere to capitalize on expanding legality and demand, a handful of ancillary players, like Sugarmade, are laughing all the way to the bank.
As described above, the key point here is that all the producers will need to find strategies to increase efficiency to stay in business as margins tighten. One of the most obvious solutions to that pinch is hydroponics. And Sugarmade is emerging as one of the biggest and fastest-growing hydroponics suppliers in North America, helped by an aggressive M&A roll-up strategy that has already started to pay big dividends.
The latest from the company is that it is gearing up to follow GRWG up onto the Nasdaq exchange.
“The approval of GrowGen shares for the move up onto the Nasdaq market is a great sign for Sugarmade as we prepare to make a similar move,” commented Jimmy Chan, CEO of Sugarmade. “It’s a positive signal about the hydroponics market and about our overall strategy. It’s time for institutional investors to get heavily involved in the pick-and-shovel ancillary markets surrounding the hemp and hemp-related boom. GrowGen has done a great job, and we are hot on their tail right now, and plan to surpass them in the race to number one in the hydroponics space.”
According to this morning’s release, GRWG’s good news is really good news for SGMD as well, given that the two companies are basically twins in terms of revenues, market focus, and scale of operations.
SGMD has already booked over $26 million in revenues on a year-to-date basis, and anticipates this number to swell to $32 million on sequential strengthening in gross margins and sales into year end. The company also noted that it is in the process of another major M&A transaction that will significantly further boost overall forward financial projections for 2020.
Based on the huge gains seen in GRWG shares as investors see the value of that uplist, the smart money may be quick to line up similar bets in SGMD.
Trulieve Cannabis Corp (OTCMKTS:TCNNF) is in a very select group among cannabis stocks. Like CURLF, Trulieve is actually up this year. And there are just a handful of pot stocks that can claim as much. At this point, you can count the number of cannabis stocks that are positive in 2019 on the fingers of one hand because, as noted above, margins in the space have tightened powerfully, and only a few have managed to adapt and roll with the punches.
Helping to foster that successful narrative, the company just announced that it is set to open the doors of its latest Florida location on Tuesday, November 26th, in Lakeland.
According to the release, “the Central Florida location is a milestone for Florida’s largest operator as Trulieve becomes the first operator in Florida to reach 40 locations. Presently, Trulieve operates 39 other dispensaries throughout the State of Florida, including in the nearby communities of Tampa, Orlando, and Wesley Chapel. The storefront, located on North Florida Avenue in North Lakeland, is part of the company’s mission to expand and ensure safe, reliable patient access statewide.”
Trulieve Cannabis Corp (OTCMKTS:TCNNF) promulgates itself as a company that engages in the cultivation, possession, distribution, and sale of medical cannabis in the United States. It offers a suite of Trulieve branded products with approximately 125 SKUs, including nasal sprays, capsules, concentrates, syringes, and cannabis flower in tamper-proof containers for vaporizers, topical creams, tinctures, and vape cartridges.
The company distributes its products to Trulieve branded stores (dispensaries) in Florida, as well as takes orders online and by phone for delivery. As of November 20, 2018, the company operated 21 dispensaries.
“Trulieve has come a long way over the past three years – from closing out 2016 with only two stores to celebrating our record-breaking 40th store in Florida with even more to come in 2019 — and 2020 – as we continue to strategically plan for the future,” said Trulieve CEO Kim Rivers. “As the patient registry continues to grow and Florida’s residents continue to seek alternative, natural relief, we will continue our mission to expand access to the natural, effective, and safe medications they have come to rely on.”
And the stock has been acting well over recent days, up something like 6% in that time.
Trulieve Cannabis Corp (OTCMKTS:TCNNF) generated sales of $93.4M, 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 20.5% on the top line. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($41.1M against $64.9M, respectively).