In Search of the Next Hot Pot Stock (OTC US: GRWG) (NASDAQ: TLRY) (OTC US: SGMD) (NASDAQ: APHA)
March 30, 2021 at 07:50 AM EDT
The legalization wave continues to run on basically a best-case trajectory in the US, with New Jersey and New York making moves to legalize over recent weeks.
The size of the US market continues to grow rapidly in legal terms, with Forbes recently putting out a piece suggesting the $24 billion threshold is attainable this year. The ball is rolling strong.
However, for investors, the question is about how to find undervalued names with promising models for maximizing shareholder value as a consequence of this increasingly visible trend.
With that in mind, we take a look at a few of the more interesting names in the cannabis patch, including: Aphria Inc (NASDAQ:APHA), Tilray Inc (NASDAQ:TLRY), Sugarmade Inc (OTCMKTS:SGMD), and GrowGeneration Corp (OTCMKTS:GRWG).
Aphria Inc (NASDAQ:APHA) bills itself as a leading global cannabis-lifestyle consumer packaged goods company with operations in Canada, United States, Europe and Latin America, that is changing people’s lives for the better – one person at a time – by inspiring and empowering the worldwide community to live their very best life by providing them with products that meet the needs of their mind, body and soul and invoke a sense of wellbeing.
Aphria’s mission is to be the trusted partner for its patients and consumers by providing them with a cultivated experience and health and wellbeing through high-quality, differentiated brands and innovative products. Headquartered in Leamington, Ontario, Aphria cultivates, processes, markets and sells medical and adult-use cannabis, cannabis-derived extracts and derivative cannabis products in Canada under the provisions of the Cannabis Act and globally pursuant to applicable international regulations. Aphria also manufactures, markets and sells alcoholic beverages in the United States.
Aphria Inc (NASDAQ:APHA) recently announced, with Tilray Inc (NASDAQ:TLRY), a global pioneer in cannabis research, cultivation, production and distribution, the launch of the website: www.aphriatilraytogether.com.
According to the release, this new, dedicated resource seeks to provide shareholders of both companies with pertinent information, news and updates leading up to the special meetings of shareholders at which Aphria’s and Tilray’s respective shareholders will vote on the resolutions necessary to implement the proposed business combination of the two companies. The website will also allow shareholders and other interested parties to register for Transaction updates that are made publicly available, so they receive information directly to their e-mail addresses.
Even in light of this news, APHA has had a rough past week of trading action, with shares sinking something like -10% in that time. That said, chart support is nearby, and we may be in the process of constructing a nice setup for some movement back the other way.
Aphria Inc (NASDAQ:APHA) generated sales of $160.5M, 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 10.9% on the top line. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($188M against $293M, respectively).
Tilray Inc (NASDAQ:TLRY) offers its products in Argentina, Australia, Canada, Chile, Croatia, Cyprus, the Czech Republic, Germany, New Zealand, and South Africa. The company has also been the subject of the recent megamerger in the pot space, combining with Aphria (APHA).
One of Tilray’s 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.
Tilray Inc (NASDAQ:TLRY) recently announced it has agreed with Worldpharma Biotech, through its wholly-owned subsidiary Tilray Portugal Unipessoal Lda., to export Good Manufacturing Processes certified medical cannabis from Portugal to Spain. The shipment marks the first medical cannabis import into Spain by Worldpharma and the 17th country to receive Tilray medical cannabis worldwide.
Brendan Kennedy, Tilray’s Chief Executive Officer, said, “We’re incredibly honored to be the first cannabis company to be approved and to ship medical cannabis into Spain. As we continue to work with regulators around the world, we are grateful to partner with the AEMPS and established pharmaceutical leaders such as Worldpharma Biotech on the distribution of Tilray medical cannabis.”
While this is a clear factor, it has been incorporated into a trading tape 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 -10% 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 -15%.
Tilray Inc (NASDAQ:TLRY) pulled in sales of $56.6M in its last reported quarterly financials, representing top line growth of 20.5%. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($189.7M against $181.3M).
Sugarmade Inc (OTCMKTS:SGMD) is a smaller cap name at an earlier stage of development, but a stock that still bears watching as it lays down a very interesting model that may be unique among publicly traded cannabis companies.
Specifically, the company has started by building a successful cannabis delivery business in California, posting huge growth last year, quickly racing into the millions of dollars in annualized revenues. And now it appears to be working toward verticalizing its operations to drive wider margins through supply chain control.
Sugarmade Inc (OTCMKTS:SGMD) most recently put out a corporate update focused on information about the recent opening of its new Nug Avenue cannabis delivery operation, which is located in the large and rapidly growing Los Angeles metro cannabis marketplace.
“We are moving forward with our core strategic plan, as announced and discussed during 2020, which consists of expanding our end-market access as a central player in the growing California cannabis delivery marketplace and developing our cannabis production capacity to verticalize our operations in the space,” noted Jimmy Chan, CEO of Sugarmade. “The successful opening of our LA delivery hub is an exciting development with strong topline growth implications given the scale of that market and our strong positioning there. And our focus on developing a vertically integrated supply chain represents continued progress toward pushing more of that growth to the bottom line, which we believe is the most effective path to directly rewarding shareholders.”
According to the release, Sugarmade recently acquired a 70% stake in the operations of Nug Avenue, which serves as a major hub for cannabis delivery services in the Los Angeles metropolitan area. Nug Avenue has been open and operating with Sugarmade involved for the past four weeks, and the results have exceeded management expectations thus far. The company also noted that it is actively pursuing acquisition of property zoned for cannabis cultivation and establishment of large-scale cannabis cultivation and production operations. As described in prior communications, Sugarmade intends to develop a full farm-to-door vertically integrated cannabis business.
Chan added, “Verticalization is an important step because it carries the potential to significantly widen margins. We have taken concrete steps in support of our goal of verticalization and expect significant additional movement toward that goal before the June 30th fiscal year end.”
In other words, expect some big news soon from Sugarmade Inc (OTCMKTS:SGMD) that bears on its premise: becoming perhaps the first truly farm-to-door vertically integrated cannabis company in the largest marketplace in the world.
GrowGeneration Corp (OTCMKTS:GRWG) trumpets itself as a company that, through its subsidiaries, owns and operates retail hydroponic and organic gardening stores in the United States. The company has been growing rapidly through a series of key strategic moves.
GrowGen carries and sells thousands of products, including organic nutrients and soils, advanced lighting technology and state of the art hydroponic equipment to be used indoors and outdoors by commercial and home growers.
GrowGeneration Corp (OTCMKTS:GRWG) recently announced its acquisition of 55 Hydroponics, a hydroponic and organic fertilizer superstore located in Santa Ana, California. Founded in 2010 by Michael Dominguez, 55 Hydroponics is the dominant hydroponics supplier in Orange County, with annual revenues approaching $10 million.
According to the release, the acquisition brings the number of GrowGen locations in California, the country’s largest legal cannabis market, to 18, with 9 locations in Southern California. When added to the recently announced leased locations in the Southern California market, GrowGen will operate close to 800,000 square feet of retail and warehouse space across 53 locations nationwide, with 11 of those locations in the important Southern California market.
While this is a clear factor, it has been incorporated into a trading tape characterized by a pretty dominant offer, which hasn’t been the type of action GRWG shareholders really want to see. In total, over the past five days, shares of the stock have dropped by roughly -25% 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 -20%.
GrowGeneration Corp (OTCMKTS:GRWG) managed to rope in revenues totaling $55M in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of -11.2%, 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 ($55.3M against $20.9M).
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