Cannabis stocks are worth watching for potential growth.
The legal marijuana market is emerging as a growth business as more companies become public and others have ramped up their mergers and acquisitions in the U.S. and Canada. Merging smaller businesses is one strategy for cannabis companies to remain one step ahead of their competitors and increase their regional footprints as more states legalize the recreational use of marijuana. "Over the next year, we expect to see further consolidation and to see big alcohol and pharmaceutical companies enter the space," says Michael Berger, founder of Technical420, a Miami-based company that researches cannabis stocks. "The recent pullback has been significant but fundamentals are improving and this is something we are excited about." Here are six top U.S. and Canadian marijuana stocks to buy for the rest of 2019.
Plus Products (PLPRF)
Plus Products is one of the largest edibles manufacturers and distributors in California, says Jeff Siegel, managing editor of Green Chip Stocks, a Baltimore-based investment research service. This pot stock is undervalued right now, but one advantage is its growing level of cash. The cash balance rose to $34.1 million in June 2019, up from $22.4 million in December 2018. "The company has a great first-mover advantage in California and will use to expand to other markets in 2020," he says. The company plans to expand to Nevada and sell its products by the second half of 2019 by partnering with TapRoot Holdings, a cannabis company operating cultivation and manufacturing facilities. Plus Products launched a new hemp cannabidiol, or CBD, product line with singer John Legend in September that includes a line of CBD-infused gummies aimed at helping people with sleep problems and other ailments. The market responded well to its announcement.
Canadian producer Aphria remains an "attractive cannabis name," wrote Brett Hundley, a senior analyst at investment bank Seaport Global Holdings in an August research report, who has a "buy" rating. One positive move is Aphria's partnership with Southern Glazer's, one of the largest North American wine and spirits distributors. Aphria, Canada's third-largest licensed cannabis producer, is not only a low-cost producer but made moves to increase its "attractive and differentiated approach to brand building and market development around the world," he wrote. The company's brands resonate with various types of consumers and its strategic approach is "building a lasting presence in key markets," Hundley wrote. Some hiccups could be Aphria's future interest in CannTrust Holding's (CTST) assets and if interim CEO Irwin Simon becomes its permanent CEO, noting that this will be dependent on several factors.
Halo Labs (AGEEF)
Halo Labs is a cannabis oil company that started in Oregon and expanded into California and Nevada. The company's revenue is increasing and rose by 356% during the second quarter compared to the same period in 2018. Halo Labs only went public in October 2018 and is a smaller player in the marijuana industry. But Halo is making moves into Africa with its 20% equity position in Bophelo Bioscience in Lesotho, the first African country to legalize the cultivation and manufacturing of cannabis. The Southern African nation has received investments from other cannabis companies such as Canopy Growth (CGC), Aphria and Supreme Cannabis (SPRWF). This move is a positive one and having a "smart management team in place" is another advantage, Siegel says.
iAnthus Capital Holdings (ITHUF)
iAnthus Capital Holdings, a U.S.-based cannabis operator, has operations in various states, including Colorado, New York, Massachusetts, Vermont and New Mexico. The company acquired Sierra Well, which has two dispensaries and cultivation and processing facilities in Nevada for about $28 million in September. The deal "makes sense" because "Nevada is an attractive market and Sierra adds important production capacity," Hundley says. The company "meets all the checkmarks -- it is well-funded, has a pretty sizable footprint and management is very conservative and is very competent," Siegel adds. The acquisition of MPX Bioceutical, an extraction company, makes iAnthus Capital one of the largest cannabis retailers in the U.S. The company has significant leverage and its valuation compared to its peers makes the company a compelling opportunity, Berger says.
A U.S. operator, Curaleaf is operating in 12 states, with 49 dispensaries and 14 cultivation sites. The company has a good footprint in the U.S. and is well-capitalized, Siegel says. Curaleaf received a warning letter in July from the Food and Drug Administration for allegedly "illegally selling" CBD products with "unsubstantiated claims" that its products could treat serious illnesses such as cancer and Alzheimer's disease. Curaleaf is "growing in a smart way" and is not spending large amounts of money, Siegel says. The company recently acquired Alternative Therapies Group for $50 million in cash. Seaport Global is bullish on the company, but says its future depends on the successful completion and integration of announced mergers and acquisition activity, Hundley wrote in a September report.
WeedMD, a Canadian licensed producer, has a rapidly expanding production capacity, Berger says. The company recently reported more than $8 million in net revenue for its second quarter, which should grow exponentially in 2020, he says. "With more capacity coming online and distribution already in place, WeedMD has visible growth prospects and this factor is something to be aware of," Berger says. "The company represents one of the most attractive Canadian cannabis producers from a growth standpoint, and we are impressed with the way the story has evolved over the last year." The company not only boasts a massive cannabis concentrate footprint, but it also has a significant outdoor growth facility. "WeedMD is a company that has significant catalysts for growth and is trading at a discount," he says. "We will be watching how the management team continues to drive the story forward."
Consider buying these marijuana stocks:
-- Plus Products (PLPRF)
-- Aphria (APHA)
-- Halo Labs (AGEEF)
-- iAnthus Capital Holdings (ITHUF)
-- Curaleaf (CURLF)
-- WeedMD (WDDMF)
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