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The Future of Cannabis (APHA, TCNNF, SGMD, CURLF, TLRY)

As the Cannabis sector gets traction during what appears to be a new and emerging bull market in the space, it makes sense for investors and traders to start closely watching stocks in the space. The larger structural thesis for the cannabis sector is still fully intact from an end-market demand standpoint. The long-term picture is just as rosy. 

But the investment opportunity in cannabis stocks may have been improved by the bear – particularly by its violent capitulatory conclusion in March – through the wipeout of weak balance sheets resulting in the paring down of total players on the playing board. That decreases competition and increases the average balance sheet quality in the space, and comes after a dump of former bag-holders hanging on from the prior bull market.

With all of that in mind, we take a look here at some potential scenarios involving likely players in this theme over the near term: Aphria Inc (NYSE:APHA), Trulieve Cannabis Corp (OTCMKTS:TCNNF), Sugarmade Inc (OTCMKTS:SGMD), Curaleaf Holdings Inc (OTCMKTS:CURLF), and Tilray Inc (NASDAQ:TLRY).

Aphria Inc (NYSE:APHA) commands a market cap of $1.2B as a leading global cannabis company driven by “an unrelenting commitment to our people, product quality and innovation.”

Headquartered in Leamington, Ontario – the greenhouse capital of Canada – Aphria has recently emerged as perhaps the best value in the big Canadian space, trading as low as 1.7x sales on a forward basis in recent months at the depths of the market lows.

Aphria Inc (NASDAQ:APHA) touts itself as one of Canada’s lowest cost producers, produces, supplies and sells medical cannabis. The company is truly powered by sunlight, allowing for the most natural growing conditions available. “We are committed to providing pharma-grade medical cannabis, superior patient care while balancing patient economics and returns to shareholders. We are the first public licensed producer to report positive cash flow from operations and the first to report positive earnings in consecutive quarters.”

It will be interesting to see if the stock can break out of its recent sideways action. Over the past week, the stock is net flat, and looking for something new to spark things. Shares of the stock have powered higher over the past month, rallying roughly 5% in that time on strong overall action. 

Aphria Inc (NASDAQ:APHA) pulled in sales of $143.9M in its last reported quarterly financials, representing top line growth of 95.5%. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($515.1M against $178.1M).

Trulieve Cannabis Corp (OTCMKTS:TCNNF) has been one of the best performing upstarts in the new cannabis bull move we have seen since March.

The company promulgates itself as a company that, through its subsidiary, Trulieve, Inc., 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. 

Trulieve Cannabis Corp (OTCMKTS:TCNNF) 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 Cannabis Corp. is headquartered in Quincy, Florida.

According to company materials, “Trulieve is a vertically integrated “seed to sale” company and is the first and largest fully licensed medical cannabis company in the State of Florida. Trulieve cultivates and produces all of its products in-house and distributes those products to Trulieve branded stores (dispensaries) throughout the State of Florida, as well as directly to patients via home delivery. Trulieve is listed on the Canadian Securities Exchange under the symbol TRUL.”

Even in light of this news, TCNNF hasn’t really done much of anything over the past week, with shares logging no net movement over that period. Over the past month, shares of the stock have suffered from clear selling pressure, dropping by roughly -4%. 

Trulieve Cannabis Corp (OTCMKTS:TCNNF) generated sales of $129.2M, 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 22.8% on the top line. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($143.5M against $104.7M).

Sugarmade Inc (OTCMKTS:SGMD) operates as a product and branding marketing company investing in operations and technologies with disruptive potential. The company’s portfolio includes CarryOutsupplies.com, SugarRush, and Budcars.com.

Its latest announcement features an interesting take that shareholders should note, focusing on management’s concerns that the company’s model may have been misunderstood by the market in the past. BudCars is a retail cannabis business, not a delivery service. Its monetization model is a mark-up from wholesale purchases, apparently on quite strong margins, rather than a delivery fee model.

The company even went on to note that it sees “very consistent 46-52% gross margins on a wholesale inventory with very secure logistical underpinnings”. It also expects that this performance will translate to its new LA BudCars hub when it opens next month. In a world where Uber Eats and GrubHub and all the other deliver service providers are trending towards long-term bankruptcy despite strong top-line performance, this is an enormously important differentiation for the company to make.

The Los Angeles cannabis market is arguably the biggest municipal legal cannabis market in the world, and the Company conservatively estimates that its first LA hub will add at least $20 million in annualized sales, with a similar anticipated gross margin profile.

“As we gear up to open our first new hub in the Los Angeles regional market, we continue to see very good signs from our Sacramento hub, with the very rapid topline growth clearly translating to the bottom line as margins hold up and even improve,” commented Jimmy Chan, CEO of Sugarmade. “As we recently reiterated, BudCars is not a delivery business comparable to GrubHub or Uber Eats. It is a top cannabis retail business with very consistent 46-52% gross margins on a wholesale inventory with very secure logistical underpinnings. This differentiation has been a source of misunderstanding, and it is critical to fully appreciating our value proposition and our strategy as a Company moving forward.”

Sugarmade Inc (OTCMKTS:SGMD) pulled in sales of $416K in its last reported quarterly financials, representing top line growth of -27.3%. However, the company appears to be experiencing a strong growth acceleration due to its BudCars takeover, with revenues on pace for as much as $30 million in annualized sales this year.

Curaleaf Holdings Inc (OTCMKTS:CURLF) just announced that it has signed an amended agreement for its acquisition of GR Companies, Inc., the largest private vertically-integrated multi-state operator in the United States. 

Joseph Lusardi, CEO of Curaleaf, stated, “Today’s announcement marks another significant step forward in finalizing our acquisition of Grassroots, providing Curaleaf an important entry to highly populous, vertically integrated markets in the Midwest. The pending integration of Grassroots will solidify Curaleaf’s position as the world’s largest cannabis company by revenue and the most well-diversified, vertically integrated cannabis company in the United States, the world’s largest cannabis market. We are well positioned to continue to lead our growing industry, and we look forward to closing the transaction and serving new patients and customers in the Grassroots community.”

Curaleaf Holdings Inc (OTCMKTS:CURLF) promulgates itself as a company that operates as an integrated medical and wellness cannabis operator in the United States. The Company is the parent of Curaleaf, Inc., a leading vertically integrated cannabis operator in the United States. Headquartered in Wakefield, Massachusetts, Curaleaf, Inc. has a presence in 12 states. 

Curaleaf Inc.’s Florida operations were the first in the cannabis industry to receive the Safe Quality Food certification under the Global Food Safety Initiative, setting a new standard of excellence.

If you’re long this stock, then you’re liking how the stock has responded to the announcement. CURLF shares have been moving higher over the past week overall, pushing about 9% to the upside on above average trading volume. CURLF shares have been relatively flat over the past month of action, with very little net movement during that period. 

Curaleaf Holdings Inc (OTCMKTS:CURLF) managed to rope in revenues totaling $129.8M in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 177%, 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 ($251M against $177.1M).

Tilray Inc (NASDAQ:TLRY) is one of the most remarkable stories in the cannabis stock space because it is such a visible and “popular” name, and yet it has been such a tragic story for anecdotal investor experiences, dropping from as high as $300/share to just under $2.50/share in just about exactly 18 months because of overhype, cap table structure, some degree of clear manipulation by major stakeholders, and a truly painful error in planning by management in step with a complete abdication of board oversight responsibilities on the way back lower. 

In other words, this wasn’t merely the story of “the vicissitudes of the marketplace, ho ho ho”. This was probably something a bit darker. By, hey, we’re all grown-ups here. For what it’s worth, the debt-servicing issues will remain in this name for far longer than most of its comparable foes.

Tilray Inc (NASDAQ:TLRY) engages in the research, cultivation, processing, and distribution of medical cannabis.

The company offers its products in Argentina, Australia, Canada, Chile, Croatia, Cyprus, the Czech Republic, Germany, New Zealand, and South Africa. Tilray, Inc. was incorporated in 2018 and is headquartered in Nanaimo, Canada.

One of its key subsidiaries is High Park, which was launched to produce and distribute world-class cannabis brands and products for the Canadian market. Based in Toronto and led by a team with deep experience in cannabis and global consumer brands, High Park has secured the exclusive rights to produce and distribute a broad-based portfolio of cannabis brands and products in Canada, subject to applicable laws and regulations.

In addition, High Park has developed new brands and products for the Canadian market. Upon the coming into force of federal legalization of cannabis for adult-use and corresponding provincial legislation, High Park anticipates fulfilling adult-use supply agreements and purchase orders in Quebec, Ontario, British Columbia, Manitoba, Nova Scotia, Prince Edward Island, Northwest Territories and Yukon on October 17, 2018.

The context for this announcement is a bit of a bid, with shares acting well over the past five days, up about 4% in that timeframe.

Tilray Inc (NASDAQ:TLRY) managed to rope in revenues totaling $52.1M in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 126.2%, as compared to year-ago data in comparable terms.

Published by Brendan Byrne

While studying economics, Brendan found himself comfortably falling down the rabbit hole of restaurant work, ultimately opening a consulting business and working as a private wine buyer. On a whim, he moved to China, and in his first week following a triumphant pub quiz victory, he found himself bleeding on the floor based on his arrogance. The same man who put him there offered him a job lecturing for the University of Wales in various sister universities throughout the Middle Kingdom. While primarily lecturing in descriptive and comparative statistics, Brendan simultaneously earned an Msc in Banking and International Finance from the University of Wales-Bangor. He's presently doing something he hates, respecting French people. Well, two, his wife and her mother in the lovely town of Antigua, Guatemala. You may contact Brendan via his email ([email protected]) or his Google+ page (https://plus.google.com/u/0/116608759701551457422).

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