140% in 9 Days (Insane)
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Marijuana stocks have seen explosive gains in the past few weeks.
The new kid on the block, Tilray (NASDAQ: TLRY), has skyrocketed since its IPO and is now up 352% in the last month and over 47% so far this week. Canopy Growth (NYSE: CGC) has been on a tear this month and is up nearly 31%, and Cronos Group (NASDAQ: CRON) has soared 68.5% this month, and 36% this week alone.
And it’s no wonder why investors are so attracted to these pot stocks. Sales of medical and recreational weed are expected to climb to $146 billion worldwide by 2025, eclipsing both the soda and tobacco markets in terms of value in the coming years.
But the marijuana market is still in its infancy, and most stocks come with crazy valuations which has many pundits saying the sector looks like a bubble.
However, there are stocks in the sector that have comparatively reasonable valuations, as well as stocks that are very well positioned to scale as the market grows, both in Canada and in the U.S. as more states move toward legalization.
Here are two stocks in the space I have my eye on now.
MariMed Inc. (OTC: MRMD)
MariMed (OTC: MRMD) isn’t as big of a name as Tilray or Canopy Growth. However, this U.S.-based cannabis company was the best-performing marijuana stock in the first half of 2018, and at this point is up 477% year-to-date and up 665% in the last 12 months.
The company is unique in that it focuses on three main areas: developing and operating medical cannabis production facilities that it leases to customers, providing professional consulting services to help businesses gain state licenses to operate in the marijuana market, and it develops its own line of cannabis products.
Its products include edibles such as cannabis-infused popcorn, fruit chews, and mints, and the company also markets cannabis flower, vape pens, extracts, and concentrates.
MariMed currently has production facilities in Delaware, Illinois, Nevada, Maryland, and Massachusetts. Spending in these states is expected to total $2.8 billion by 2022, and Massachusetts could exceed $1 billion alone within the next four years.
The company has also “laid the groundwork for opportunities in Pennsylvania, New Jersey, Michigan, Florida, and Ohio,” according to CFO Jon Levine. Estimates say these five states combined would have a marijuana market of roughly $4 billion annually in the next four years.
MariMed is likely to move into Michigan should the state pass its recreational legalization initiative in November. The state is already one of the largest medical marijuana markets in the country with spending last year totaling $812 million. Sales in the state could jump to $1.4 billion by 2022 with a total output of $2.6 billion if the people of Michigan vote for recreational legalization, which is likely.
What makes MariMed an interesting play is that it is well positioned to expand as the U.S. marijuana market grows. The U.S. market alone could reach $22 billion by 2022, compared to Canada’s expected market of $5 billion.
The company’s second quarter earnings were impressive. MariMed reported revenue of $2.9 million for the quarter, a jump of 81% over the same quarter last year.
If MariMed is able to continue to generate strong sales growth and move into additional markets as states pass legalization measures, the company could be a very strong player for the long run.
But what’s interesting about this grower is that it only operates one production site with a capacity over 113,000 kilograms annually at peak production, which it expects to reach within the next 13 months. That production capacity would put OrgaiGram among the top five producers in Canada. And with just one grow site, OrganiGram is able to centralize costs, and thus, improve its margins, giving it a leg up over other growers.
OrganiGram has also diversified beyond just dried cannabis. The company reported a 297% increase in sales of its cannabis oil—which comes with a much higher margin than dried cannabis—in the second quarter, and won two awards for its dried flower product line at the Canadian Cannabis Awards in 2017, which means it will be able to use premium pricing for its dried flower products.
The company is also expanding to Australia and Germany. OrganiGram has partnered with Cannatrek in Australia, and Alpha-Cannabis in Germany. An expanding global footprint could set the company up to be an attractive partnership target for a beverage maker or tobacco company, which would certainly elevate the stock.
OrganiGram also boasts a strong balance sheet and has posted outstanding revenue growth, and positive earnings in the last two quarters.