Auxly Cannabis (NASDAQOTH: CBWTF) and MariMed (NASDAQOTH: MRMD) aren't your run-of-the-mill marijuana stocks. Both Auxly and MariMed claim characteristics that differentiate them from the rest of the pack.
Only one of these stocks have stood out in a good way over the last 12 months, though. Shares of Auxly Cannabis have plunged nearly 60% while MariMed has quintupled in value over the period. But which of these two marijuana stocks is the better pick now?
Image source: Getty Images.
The case for Auxly Cannabis
What's the primary reason investors might like Auxly Cannabis? Its vertical integration and diversification in the cannabis industry.
Auxly is a cannabis grower -- but not like you're used to seeing with Canadian marijuana stocks. The company claims 15 partners that grow marijuana. Auxly projects that by 2021, its current partners will be able to produce 170,000 kilograms of cannabis per year.
However, the company also claims both midstream value-adding processing and downstream distribution and sales operations. This is key because Auxly thinks that margins will be tighter in the future for marijuana growers than they are now. Midstream and downstream cannabis operations should offer greater profits.
A good example of Auxly's midstream focus is its DoseCann subsidiary. DoseCann extracts oils from cannabis and makes pharmaceutical and natural health products from cannabis extracts.
Auxly has several downstream distribution channels. These include businesses in which Auxly owns all or a majority interest in, such as Kolab Project and Uruguay-based Inverell. The company's downstream channels also include partnerships, including one with Atlantic Cultivation to operate retail locations in Newfoundland and Labrador and another with European medical cannabis distributor ICC International Cannabis.
The main negatives for Auxly Cannabis right now are that it isn't profitable and its revenue isn't impressive. Auxly posted yet another loss in its Q3 results in November with revenue of only 512,000 Canadian dollars. However, the company is in its early stages. As the global marijuana market expands, Auxly should be in a good position to dramatically boost sales and eventually achieve profitability.
The case for MariMed
MariMed isn't profitable yet, either. However, the company's revenue has steadily increased to nearly $3.4 million in the latest reported quarter. And investors have liked what they've seen with MariMed, making it one of the best U.S. marijuana stocks of 2018.
Like Auxly Cannabis, MariMed has taken the road less traveled in its entrance into the marijuana industry. The company started out offering advisory services to other cannabis-focused businesses for the design, development, funding, and operation of medical cannabis cultivation facilities, production centers, and dispensaries. However, MariMed has shifted its strategy and is now buying out its customers.
MariMed hasn't thrown in the towel on providing advisory services. Actually, in October 2018, the company acquired BSC Group, which provides licensing, consulting and operations management services to U.S. cannabis businesses.
But MariMed sees a tremendous opportunity in two markets that made it eager to move beyond just consulting. One of those markets is the U.S. medical marijuana market. Thirty-three states have legalized medical marijuana, with many of these opportunities still in their very early stages.
The company is also excited about the U.S. hemp market. With the passage of the 2018 farm bill in December, hemp is now legal in the U.S. Cannabis market research company Brightfield Group projects that the U.S. hemp-based cannabidiol (CBD) market could reach $22 billion by 2022.
In November, MariMed jumped into the hemp CBD market with a strategic investment in hemp grower GenCanna. The company followed up with the establishment of a wholly owned subsidiary, MariMed Hemp, in January that is focused solely on the hemp CBD market.
Better marijuana stock
Auxly's vertical integration appears to be a smart approach. MariMed's focus on the U.S. medical cannabis and hemp CBD markets also seem to be good long-term moves. But it's too soon to know whether either of these companies' strategies will actually succeed.
For now, the best way to pick between these two marijuana stocks is based on their growth opportunities. I think MariMed gets the nod over Auxly Cannabis.
Although I'm not convinced that the U.S. hemp CBD market will soar to $22 billion in less than four years, I expect the market to grow rapidly. I also think that the U.S. medical marijuana market will expand significantly over the next few years. In my view, this gives MariMed the greater opportunity over the next few years.
However, while I think MariMed gets the nod over Auxly Cannabis, neither of these stocks is suitable for most investors. Until the companies can show how well their strategies are working, I'd keep MariMed and Auxly on your radar screen and not in your portfolio yet.
More From The Motley Fool
- 10 Best Stocks to Buy Today
- 3 Stocks That Are Absurdly Cheap Right Now
- 5 Warren Buffett Principles to Remember in a Volatile Stock Market
- The $16,728 Social Security Bonus You Cannot Afford to Miss
- The Must-Read Trump Quote on Social Security
- 10 Reasons Why I'm Selling All of My Apple Stock