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Why the Bottom is in for Pot Stocks ($TLRY, $NUGS, $APHA, $GTBIF, $CURLF)

After a torturous bear market, the bottom may finally be in place for the cannabis sector. Why? There are three big reasons.

First, cannabis has become a seasonal marketplace. The price of cannabis flower will likely be on the rise as the dry season comes to an end and outdoor producers wind down their inventories as planting starts up for the new grow season. That means the market will be supplied only by hybrid system and indoor producers.

Second, the coronavirus epidemic has shut down a lot of distribution at pot shops, but numerous delivery services have ramped into gear, and demand overall has risen because of hoarding, increased anxiety, and boredom. The initial shut down at dispensaries crashed these stocks. But the advent of widespread delivery has reopened the marketplace, leaving many stocks washed out and undervalued.

Third, the crash on the coronavirus – that brought down the whole stock market – acted as a final straw, completely washing out investor sentiment in stocks in this space, which had already been through a long and drawn out bear market. This final leg was capitulatory and brought many names into the basement and ready for distressed asset accumulation.

We are now on the other side of that crash and the path ahead is blue skies as far as the eye can see. With that in mind, here are five of our favorite names: Tilray Inc (NASDAQ:TLRY), Cannabis Strategic Ventures (OTCMKTS:NUGS), Aphria Inc (NYSE:APHA), Green Thumb Industries Inc (OTCMKTS:GTBIF), and Curaleaf Holdings Inc (OTCMKTS:CURLF)


Tilray Inc (NASDAQ:TLRY)
crashed down to just $2.50/share in mid-March. That was the end of a pullback that started in September 2018 at the $300/share intraday highs. This is the poster child for the cannabis bear market.

But look at this way: the stock is now trading at 1.8x sales on 202% topline growth, on a glidepath to nearly a quarter billion in revenues in 2020. That’s just not something you see. It’s washed out. Debt is an issue, and the cost of servicing that debt is an impediment, and we would have said that was a big problem when it was trading at $40/share. But at $5 or even $15 per share, this is something that deserves some attention.

Tilray Inc (NASDAQ:TLRY) has a strong current balance sheet, with cash levels exceeding current liabilities ($96.8M against $92.4M). So the problems aren’t getting worse.

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.

 

Cannabis Strategic Ventures (OTCMKTS:NUGS) is the real small-cap speculative name on this list. But don’t let the price fool you: this is a major producer in the making, with capacity coming online that amounts to 275k square feet of premium cannabis cultivation capacity, which is capable of yielding 178,750 square feet of canopy flower space, based on industry standard assumptions. Given standard expectations of at least 4 harvests per year for similarly outfitted facilities, with each square foot generally assumed to yield 30-50 grams of cannabis flower, this capacity carries the potential to yield an annual harvest volume of between 21.5 to 35.8 million grams.

It’s also one of the cheapest and most interesting names in the space.

The company just hit the wires to announce the sale of a whopping 1000 lbs of cannabis. The street value of that much pot is something approximating $3.5 to $4 million. Cannabis is pricing at nearly $1,600 per pound at the top of the wholesale supply chain. The company also noted in the release that it is hiring to build more staff because it is seeing an overwhelming amount of demand due to downsizing competitors and increasing consumer need.

“We believe there are two factors driving cannabis prices higher right now,” commented Simon Yu, CEO. “First, people are reacting to the coronavirus epidemic, which is producing anxiety and an instinct to hoard necessary goods. For many people, that includes cannabis. This is particularly true for those with medical marijuana prescriptions. Second, we are moving toward the end of the dry season, so supply is tapering out of the market as outdoor producers wind down inventories ahead of the new planting season. We are clearly benefitting from both of these dynamics right now, which should continue to drive performance over coming months.”

Cannabis Strategic Ventures (OTCMKTS:NUGS) incubates, develops and partners with category leaders in the cannabis and ancillary sectors. Its NUGS brand experience provides operational and financial strategic partnerships and a range of essential services to emerging and existing Cannabis consumer brands.

Apparently, right now is a good time to have this one on the radar. The company noted in its release that it has hundreds of pounds of inventory on hand, expanding production, rising cannabis prices, and growing demand. As such, while other players in the space appear to be cutting back, NUGS has no plans to cut. They are actually hiring Instead.

Yu continued, “It’s remarkable to see other producers actually moving to reduce capacity and headcount at a time when people who legitimately need this product are finding it difficult to locate. From our vantage point, this is a tremendous opportunity to strike while the iron is hot and expand our share of the market by meeting the booming demand that’s out there right now.”

 

Aphria Inc (NYSE:APHA) is actually just about the best of both worlds right now: it’s maybe the fastest growing big producer, and it’s maybe the most undervalued one on a p/s basis.

To put it bluntly, the stock is trading at 1.7x sales on over 450% y/y sales growth with a pace in the works to beat a half billion on the top line. That’s ridiculous.

Aphria Inc (OTCMKTS:APHQF) has been setting the standard for the low-cost production of safe, clean and pure pharmaceutical-grade cannabis at scale, grown in the most natural conditions possible. Focusing on untapped opportunities and backed by the latest technologies, Aphria is committed to bringing breakthrough innovation to the global cannabis market.

The Company’s portfolio of brands is grounded in expertly-researched consumer insights designed to meet the needs of every consumer segment. “Rooted in our founders’ multi-generational expertise in commercial agriculture, Aphria drives sustainable long-term shareholder value through a diversified approach to innovation, strategic partnerships and global expansion, with a presence in more than 10 countries across 5 continents.”

The company 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.”

The context for this announcement is a bit of a bid, with shares acting well over the past five days, up about 12% in that timeframe.

Aphria Inc (NYSE:APHA) pulled in sales of $120.2M in its last reported quarterly financials, representing top line growth of 454.5%. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($497.7M against $152.5M).

 

Green Thumb Industries Inc (OTCMKTS:GTBIF) is another rapid-growth target for investor attention, with the top line humming along at better than 300%

The company is a producer and distributor of cannabis products including flower, concentrates for dabbing and vaporizing, edibles, and topicals. The company markets its products through third party retailers. It also owns and operates a chain of 50 retail stores under the RISE dispensaries name.

Green Thumb Industries Inc (OTCMKTS:GTBIF) is a national cannabis cultivator, processor and dispensary operator, is dedicated to providing dignified access to safe and effective cannabis nationwide while giving back to the communities in which they serve.

As a vertically integrated company, GTI manufactures and sells a well-rounded suite of branded cannabis products including flower, concentrates, edibles, and topicals. The company also owns and operates a rapidly growing national chain of retail cannabis stores called RISE(TM) dispensaries.

Headquartered in Chicago, Illinois, GTI has seven manufacturing facilities and licenses for 50 retail locations across seven highly regulated U.S. markets. Established in 2014, GTI employs more than 350 people and serves hundreds of thousands of patients and customers each year.

The context for this stock right now is a bit of a bid, with shares acting well over the past five days, up about 7% in that timeframe.

Green Thumb Industries Inc (OTCMKTS:GTBIF) pulled in sales of $100.1M in its last reported quarterly financials, representing top line growth of 264.8%. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($60.5M against $148.4M, respectively).

 

Curaleaf Holdings Inc (OTCMKTS:CURLF) pulled in sales of $99.6M in its last reported quarterly financials, representing top line growth of 136%. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($54.9M against $137.8M, respectively).

The stock is one of the biggest players with US east coast exposure as a primary footprint. Shares recently touched cycle bottom in the $2.50/share area, and it certainly looks like a low that can stick at this point.

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. operates 30 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.

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.

It cultivates, processes, markets, and/or dispenses a range of cannabis products in various operating markets, including flower, pre-rolls and flower pods, dry-herb vaporizer cartridges, concentrates for vaporizing, concentrates for dabbing, tinctures, lozenges, capsules, and edibles.

The company also provides non-cannabis services to licensed cannabis operators in the areas of cultivation, extraction and production, and retail operations. As of November 01, 2018, it operated a network of 29 dispensaries. The company was founded in 2010 and is headquartered in Wakefield, Massachusetts.

The stock has been acting well over the past five days, up about 12% in that timeframe.

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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