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Trading the “Big Green Bottom” (TLRY, HMPQ, CGC, MJNA)

Yes, the market seems like a function for determining nothing other than the degree to which the global coronavirus pandemic will help or hurt any given stock. It’s hard to see anything else. But we would suggest that successful investors in operation now – judged a year from now – will be seeing something else right now. Playing a different game. Finding the real value on a larger growth curve that speaks to the world now and in the future.

The most dramatic of this dynamic is what we currently see in the hemp, CBD, and cannabis space, which has been through a painful bear market for more than a year leading into the current market downturn.

History is filled with examples of sector bear markets being exaggerated by a broad market or recessionary downturns that overextend the weakness in an otherwise undervalued space, granting contrarian “smart money” investors with a rare opportunity to gain access to long-term growth trends at absurdly undervalued prices.

We believe that we might now be seeing such a scenario in the hemp, CBD, and cannabis space. We would highlight four key opportunities that present themselves right now: Tilray Inc (NASDAQ:TLRY), HempAmericana Inc (OTCMKTS:HMPQ), Canopy Growth Corp (NYSE:CGC), and Medical Marijuana Inc (OTCMKTS:MJNA).

 

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.

According to the company’s IPO announcement, “Tilray, Inc., a vertically-integrated and federally-licensed cannabis cultivator, processor and distributor, today announced the pricing of its initial public offering of 9,000,000 shares of Class 2 common stock. 6,524,000 shares of Class 2 common stock will be offered in the United States and certain other countries except Canada at a price to the public of US$17.00 per share for a total offering size of US$110,908,000 and 2,476,000 shares of Class 2 common stock, which we refer to as Subordinate Voting Shares, will be offered in Canada and certain other countries except the United States at a price to the public of CAD$22.451 per share for a total offering size of CAD$55,586,200. Based on current exchange rate1, the total combined offering size is approximately US$153,000,000.00.”

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 17% in that timeframe. Over the past month, shares of the stock have suffered from clear selling pressure, dropping by roughly -53%.

Tilray Inc (NASDAQ:TLRY) pulled in sales of $46.9M in its last reported quarterly financials, representing top line growth of 202.2%. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($96.8M against $92.4M).

 

HempAmericana Inc (OTCMKTS:HMPQ) is a more speculative opportunity on this list, but a very interesting one because, by all obvious accounts, the company is finally turning a corner into full commercialization, which has obvious implications for the value of the security right now.

HempAmericana has been a perpetual “high potential” opportunity for at least a year. But we haven’t seen it blossom into a fully commercial entity because of some pretty standard obstacles that are frankly tough for any CBD, hemp, or cannabis company to navigate. But, more importantly, based on its news out this morning, the company has now moved beyond that point is at the starting gate to genuine revenue growth – at long last.

According to its release, out today, “For a few months the Company was not able to process orders due to a change in Policy with the PayPal Platform not allowing Hemp related product sales. The Company has retained an Industry leading payment processor that accepts payment for Hemp products. The Company is very pleased to have been approved to accept credit cards through First Direct Financial. We recognize that this process took more time than we liked, but now we are ready to meet the ever-growing market demand and are fully ready to sell, process, and ship orders more efficiently than ever.”

HempAmericana Inc (OTCMKTS:HMPQ) is an emerging leader in the CBD products market.

The Company owns and operates a high-capacity, state-of-the-art CBD extraction and processing facility located in Augusta, Maine. This facility is armed with a supersized supercritical CO2 extraction system, centrifugal partition chromatography refinement technology, and a mechanized fully-automated CBD bottling system.

The Company’s CBD oil business uses the brand designation, “Weed Got Oil”. HempAmericana also researches, develops, and sells products made of industrial hemp, including a popular brand of hemp rolling papers marketed under the brand name, “Rolling Thunders”. Hemp Americana’s CEO, Sal Rosillo, is a visionary in both the Cannabis and CBD space.

This is a highly speculative name because we haven’t seen big sales growth kick in yet. But, based on all appearances, that shift is underway now and we may be hearing a lot more for this stock soon.

 

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.

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.

The CGC trading tape has been recently characterized by a pretty dominant offer, which hasn’t been the type of action CGC shareholders really want to see. In total, over the past five days, shares of the stock have dropped by roughly -3% 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 -23%.

Canopy Growth Corp (NYSE:CGC) pulled in sales of $123.8M in its last reported quarterly financials, representing top line growth of 49%. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($2.3B against $418.3M).

 

Medical Marijuana Inc (OTCMKTS:MJNA) is perhaps the weakest player on the game board in this discussion simply given its history of dilution and lack of respect for its shareholders. The company has leaned on hype and a lack of transparency. But it has a broad distribution footprint for CBD products, so it can’t be entirely dismissed.

The company casts itself as an investment holding company that operates in the medical marijuana and industrial hemp markets.

Its products range from patented and proprietary based cannabinoid products to seed and stalk or isolated high value extracts manufactured and formulated for the pharmaceutical, nutraceutical, and cosmeceutical industries. The company licenses its proprietary testing, genetics, labeling and packaging, tracking, production, and standardization methods for the medicinal cannabinoid industry.

It engages in the research and development of cannabinoid-based pharmaceuticals; and marketing and distribution of cannabidiol hemp oil-based products. In addition, the company provides management support and services to cooperatives, collectives, health and wellness facilities, and medical clinics; and consulting and securities services to businesses and individuals in the legal cannabis industry.

It’s subsidiary, Kannaway, is a network sales and marketing company specializing in the sales and marketing of hemp-based botanical products. Kannaway currently hosts weekly online sales meetings and conferences across the United States, offering unique insight and opportunity to sales professionals who are desirous of becoming successful leaders in the sale and marketing of hemp-based botanical products.

Further, it focuses on the treatment of pain and other medical disorders with the application of chewing gum-based cannabis/cannabinoid medical products.

And the stock has been acting well over recent days, up something like 2% in that time. Over the past month, shares of the stock have suffered from clear selling pressure, dropping by roughly -13%.

Medical Marijuana Inc (OTCMKTS:MJNA) generated sales of $17.7M, 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 -14.3% on the top line. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($6.5M against $10.8M, respectively).

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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