The cannabis space is targeting some relatively remarkable growth estimates, with analysts routinely jacking up forecasts. But two dynamics have made it increasingly difficult for investors in the space: the increasing supply along with demand to suit the process of legislative and mainstream adoption has pressured cannabis pricing, and the enthusiasm of investors along the way has created some valuation issues that have led to significant pain for poorly timed entries.
That leaves us with a classic stockpicker’s market in the pot stock space. We review several candidates to aid in your analysis: Tilray Inc (NASDAQ:TLRY), Medicine Man Technologies Inc (OTCMKTS:MDCL), and OrganiGram Holdings Inc (NASDAQ:OGI).
Tilray Inc (NASDAQ:TLRY) has been a controversial name because the short-squeeze was so dramatic in the opening months of the stock’s listed trading, and yet it has now fallen in such a shocking manner, with the stock’s current woes being directly related to massive debt servicing costs from convertibles – a worse situation one cannot imagine for a company at this stage.
According to company materials, 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.
Even after the disastrous earnings report, management was typically in denial.
“We are pleased with our second quarter results and strong business momentum,” said Brendan Kennedy, Tilray President and Chief Executive Officer. “Our team has executed against our plan, with adult-use revenue nearly doubling in the second quarter compared to the first quarter and gross margin increasing sequentially for the second quarter in a row. As we continue to grow, we remain focused on our long-term strategic objectives and deploying capital to maximize stockholder value.”
The trading tape continues to be characterized by a pretty dominant offer, which hasn’t been the type of action TLRY shareholders really want to see. In total, over the past five days, shares of the stock have dropped by roughly -11% on above average trading volume. All in all, not a particularly friendly tape, but one that may ultimately present some new opportunities.
Tilray Inc (NASDAQ:TLRY) managed to rope in revenues totaling $45.9M in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 371.1%, 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 ($220.9M against $175.9M).
But, in all of this, losses continue to pile up much faster than anticipated and the convertible debt servicing undermines that sense of a superficially strong balance sheet.
Medicine Man Technologies Inc (OTCMKTS:MDCL) generated sales of $1.8M, according to information released in the company’s most recent quarterly financial report. In addition, the company is sitting on about $4.3M in cash. That puts the stock in a sweet spot as far as valuation in the pot space, with shares trading at around 14x sales.
That sense has fueled aggressive interest in the name, with shares rallying as much as 30% higher so far during September alone.
As we have noted in the past, the company is capitalizing on recent changes in Colorado state law (namely, passage of HB 19-1090, which will take effect on November 1, and allow for outside investors, venture capitalists and private equity firms to gain investment access to Colorado’s cannabis industry.
MDCL has been a well-respected and successful advisor and consultant to firms in the cannabis industry for many years. But this shift in the legal context has created a new opportunity to consolidate production and distribution under the MDCL umbrella in a roll-up that could produce significant revenue growth for a stock that is already cheap relative to peers in the space.
Here’s the company’s CEO on the new bill: “At a time when cannabis is valued at $1.5 billion and is expected to grow to $2.1 billion by 2022 in Colorado alone, this legislation will serve to accelerate Colorado’s leadership position in the entire cannabis industry, and those entities fortunate enough to do business in our state – including our own. This was a tremendous win for the industry and for Medicine Man Technologies.”
In all, the company has entered into binding term sheet agreements to roll up some bread and butter in the Colorado cannabis marketplace, including 12 cultivation facilities, 7 proprietary extraction facilities, 7 manufacturers of infused products, 33 strategically located retail dispensaries, and a state-of-the-art manufacturing, research and development lab that represents Colorado’s first and only active cannabis research license in the state.
OrganiGram Holdings Inc (NASDAQ:OGI) recently announced that it has received Health Canada’s approval for the licensing of 17 additional cultivation rooms under the Cannabis Regulations.
According to the release, the new cultivation rooms represent approximately 15,000 kg/yr1 of increased target production capacity. These are the first 17 rooms licensed within the Company’s Phase 4B expansion and now brings the Company’s Moncton facility to annualized licensed capacity to a target of 76,000 kg. The licenses are valid until March 27, 2020 and subject to terms and conditions.
“Once again, we are pleased to receive licensing approval consistent with our expectations and the streamlined process we have experienced to date. Our Phase 4 facility expansion remains on schedule to meet growing demand and further contribute to efficiencies of scale,” explains Greg Engel, CEO, Organigram.
OrganiGram Holdings Inc (NASDAQ:OGI) promulgates itself as a company that, through its subsidiaries, produces and sells dried cannabis and cannabis oil in Canada.
It also offers wholesale shipping of cannabis plant cuttings, dried flowers, blends, pre-rolls, and cannabis oils to retailers and wholesalers. The company also exports its products. It sells its products online, as well as through phone orders. OrganiGram Holdings Inc. was founded in 2013 and is headquartered in Moncton, Canada.
Even with that news, the action hasn’t really heated up in the stock, with shares moving net lower over the past week.OrganiGram Holdings Inc (NASDAQ:OGI) pulled in sales of $24.8M in its last reported quarterly financials, representing top line growth of 564.3%. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($87.8M against $25.7M).