Growth stocks have been on sale. For investors, the current bear market context could represent a defining opportunity for the years ahead.
Rising interest rates, geopolitical angst, and bearish investor sentiment have conspired to shake out weak hands across the market in some of the themes that have been crowded with bullish speculators over recent years. That adds up to bargains in areas of the market with undeniable long-term trends already in place.
One such sector is the Cannabis theme, where analysts see strong legislative and demand-growth tailwinds set to shape the coming decade.
Growth in demand for cannabis products continues to define the market backdrop. According to Forbes, the cannabis industry is one of the country’s fastest-growing industries. Last year, legal sales reached $17.5 billion. By 2030, annual sales across the U.S. will reach $100 billion, according to Cowen.
At the same time, stocks tethered to the cannabis theme have been left for dead by retail investors unable to stomach recent volatility, creating an interesting opportunity for investors looking to put fresh capital to work.
With that in mind, we take a look below at some of the most interesting opportunities in the cannabis stock space.
Village Farms International Inc. (Nasdaq:VFF) engages in the management and operation of agricultural greenhouse facilities in the United States and Canada. It operates through its Produce Business, Energy Business, and Cannabis segments.
The Produce Business segment focuses on the production, marketing, and selling of product groups which consist of tomatoes, bell peppers, and cucumbers. The Energy Business segment offers power that it sells per a long-term contract to its one customer. The Cannabis segment covers the production and supply of cannabis products to be sold to other licensed providers and provincial governments across Canada and internationally through Pure Sunfarms.
Village Farms International Inc. (Nasdaq:VFF) recently announced that its wholly owned subsidiary, Pure Sunfarms, has received EU GMP certification from Bezirksregierung Düsseldorf (District Government of Dusseldorf, Germany) for its 1.1 million square foot Delta 3 cannabis production facility located in Delta, British Columbia. EU GMP certification permits Pure Sunfarms to export EU GMP-certified medical cannabis to importers and distributors in international markets that require EU GMP certification.
“Our ability to now export our cannabis products to the EU and other international markets that require EU GMP certification provides an incremental revenue stream in addition to the strong growth that we continue to expect in Canada in 2022 and beyond,” said Mandesh Dosanjh, President and Chief Executive Officer, Pure Sunfarms. “We look forward to providing the EU high quality, British Columbia-grown medical cannabis flower, beginning in the largest medical cannabis market in the region, Germany, with shipments to that country targeted to begin in the third quarter of this year.”
If you’re long this stock, then you’re liking how the stock has responded to the announcement. VFF shares have been moving higher over the past week overall, pushing about 3% to the upside on above average trading volume. Over the past month, shares of the stock have suffered from clear selling pressure, dropping by roughly -14%.
Village Farms International Inc. (Nasdaq:VFF) managed to rope in revenues totaling $72.8M in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 53.7%, 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 ($58.7M against $64.3M, respectively).
Sugarmade Inc. (OTC US:SGMD) is a smaller player in the space. But that smaller market cap also implies the potential for faster more dramatic growth for investors if the company is able to spur new avenues of expansion as a growing vertically integrated player in the California cannabis market.
The company currently operates a cannabis delivery business with cultivation and product manufacturing coming into place to round out a fully vertical model. To help build that model out, it is getting ready for the first planting at its large 640-acre outdoor cultivation site associated with its recently acquired Lemon Glow subsidiary. But there’s more here than growing sales and verticalization. The company also recently announced its entrance into the rare cannabinoid space. However, SGMD could be even more interesting given its most recent move to jump on an unexploited market trend with big implications.
Sugarmade Inc. (OTC US:SGMD) just put out news this morning that it is exploring a possible joint venture with a well-established business to create access to the Los Angeles reservation-only omakase sushi restaurant marketplace.
As noted in the release, the joint venture may include an on-site cannabis event area and cannabis delivery services hub.
Management believes there is an opportunity to create a new model with potentially wide-ranging implications for the LA-based cannabis marketplace and its relationship with the reservation-only dining event market.
Shares of SGMD are on sale likely because few investors are aware of its recent growth as it lays a foundation as an emerging player with real promise in the Los Angeles marketplace, which remains the most dynamic local cannabis market on the planet. If its new unique venture bears fruit, Sugarmade could be charting a course to become one of the fastest growing cannabis players in that marketplace.
Sugarmade Inc. (OTC US:SGMD) CEO Jimmy Chan noted, “We believe this presents a tremendous opportunity for Sugarmade to break into a new market that aligns well with our established expertise and infrastructure. On-site cannabis consumption is still extremely rare at dining establishments in LA. The omakase phenomenon has become one of the defining trends in the restaurant industry over recent years. We believe this dovetails extremely well with the cannabis trend. A partnership in this area may open the door to further establishing Sugarmade cannabis products in the rapidly growing and vibrant LA metro marketplace.”
GrowGeneration Corp. (Nasdaq:GRWG) engages in the retail of hydroponic and organic specialty gardening products.
The company offers lighting fixtures, nutrients, seeds and growing media systems, trays, fans, filters, humidifiers and dehumidifiers, timers, instruments, water pumps, irrigation supplies, and hand tools.
GrowGeneration Corp. (Nasdaq:GRWG) recently announced the acquisition of Horticultural Rep Group (HRG).
“With this acquisition, GrowGen is strengthening its global product supply chain and adding significant distribution of its growing list of private label products,” said Michael Salaman, President and co-founder of GrowGen. “Keith Harrington is one of the most respected executives and one of the early innovators of the U.S. modern horticultural market. We are excited that he will contribute his multi-decade expertise to the GrowGen team.”
The stock has suffered a bit of late, with shares of GRWG taking a hit in recent action, down about -5% over the past week. Over the past month, shares of the stock have suffered from clear selling pressure, dropping by roughly -8%.
GrowGeneration Corp. (Nasdaq:GRWG) has a significant war chest ($81.2M) of cash on the books, which must be weighed relative to about $47.1M in total current liabilities. GRWG is pulling in trailing 12-month revenues of $422.5M. In addition, the company is seeing major top-line growth, with y/y quarterly revenues growing at 46.3%.
Other key players in the cannabis stock space include Sundial Growers Inc. (Nasdaq:SNDL), Trulieve Cannabis Corp. (OTC US:TCNNF), Innovative Industrial Properties Inc. (NYSE:IIPR), Tilray Brands Inc. (Nasdaq:TLRY), Akanda Corp (NASDAQ:AKAN), and ETFMG Alternative Harvest ETF (NYSEArca:MJ).
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