After a Rough Year, Better Times are Ahead for the Marijuana Sector. And There are Plenty of Cheap Marijuana Stocks Out There.
Most of the news from the marijuana world is gloomy these days. The oversupply problem in Canada continues, and may get even worse, because companies continue to expand capacity faster than the provincial governments are allowing the opening of legal outlets. So companies are running out of cash, but investors (just when they are most needed) have been running away. And prospects for any major legislative progress in the U.S. in 2020 are slim.
Also, numerous cannabis companies now find themselves targets of class action lawsuits by investors disgruntled about the losses that the stock market handed them last year—as if the general decline of the sector in 2019 was the fault of company management, rather than the investors who bid stocks up to irrational levels in the first place.
But I’m not gloomy.
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I’m accustomed to a world where good news is bountiful at tops (as it was in this sector last spring) and bad news is abundant at bottoms. So all this bad news actually makes me feel good about the sector—there are plenty of cheap marijuana stocks out there!
Additionally, I’m encouraged by the action of the Marijuana Index, which bottomed in early December and has been slowly gaining strength since, as savvy investors put money into the cannabis stocks with the best prospects for real revenue growth and real earnings.
Marijuana Index
Bottom line, marijuana stocks are on sale now, and the best stocks are already trending up, so if you want to make money in these stocks in 2020, you should be on board now.
Below are three cheap marijuana stocks to consider today.
3 Cheap Marijuana Stocks to Buy Now
Aphria (APHA) — The Best Canadian Marijuana Stock
Aphria is the biggest seller of marijuana in Canada; revenues were $120.6 million in the quarter ended November 30 (fiscal Q2 of 2020), up 457% from the prior year, while the loss per share was two cents, compared to a loss of a penny the year before. For the full fiscal year, management projects net revenue of $575 to $625 million, and adjusted EBITDA of $35-$42 million. That’s great growth. Yet today the stock’s market capitalization is just three times revenues, which is low for the sector.
One major reason for the company’s leadership position in Canada is location; the company grows marijuana in greenhouses located in Learnington, Ontario (which is farther south than Detroit), so its energy costs are just 1/12th those of companies with traditional indoor growing operations. But this is also an international story. Aphria has a German hub through which it will distribute its marijuana through Europe (the company received its European Union Good Manufacturing Practices certification (EU GMP) just last week) and it has a Colombia hub that will serve South America.
Meanwhile, in Canada, where Cannabis 2.0 took effect in December, the company is developing a “broad suite of high margin derivative products such as vapes, edibles, beverages, concentrates, topicals and other products such as oral thin strips and transdermal patches.” However, near-term, the company’s primary focus is vape products as that’s where the biggest profit potential is today.
APHA bottomed in November at 3.75 and has been working its way higher since, driven by growing trading volume, and now both its 25- and 50-day moving averages are trending up.
Trulieve (TCNNF) — The Best U.S. Marijuana Stock
Remember what I wrote above about news being great at tops and terrible at bottoms? Well, you now have an excellent opportunity to buy TCNNF when the news is terrible!
Trulieve is the largest seller of medical marijuana in Florida (with roughly 55% of the market), it’s profitable, and it has plans to move into other states (particularly Connecticut, Massachusetts and California). Also, the company has been profitable since 2017. The third quarter of 2019 saw revenues of $70.7 million, up 150% from the year before, while adjusted EBITDA was $36.9 million. And investors liked that. After that report was released, they bid the stock up from 10 to 13.5 in just three weeks!
But short-sellers attacked the stock in mid-December (when it was the strongest of all cannabis stocks), and that pretty much killed the stock’s momentum, bringing it back in line with the sector. So two weeks ago, the company sued the short-sellers. Long-term, I believe all will work out well here for the company, so now is a good time to get on board this cheap marijuana stock.
Grow Generation (GRWG) — The Best Low-Risk Marijuana Stock
Denver-based Grow Generation operates the largest and fastest-growing chain of hydroponic and organic garden centers in North America (26 locations in nine states), all catering to commercial growers of cannabis. Thus, everything it does is legal nationally. In fact, the company doesn’t even mention the words cannabis or marijuana on its website—though its expansion plans are clearly in sync with state-by-state trends of legalization of cannabis. In the third quarter, revenues were $21.8 million, up 159% from the year before, while EPS was $0.02 per share, up from a loss of $0.07 the year before.
The company has great potential to grow by acquisition in the fragmented gardening industry, and for guidance along the way, has ex-CEO of Home Depot Bob Nardelli on board as Senior Strategic Advisor.
Grow Generation, thus, is a lower-risk investment in the cannabis industry. The stock’s market capitalization is just 2.2 times revenues. However, average trading volume is a bit light at 180,000 shares per day, so that does add risk. The stock bottomed at 3.5 in October and since then has been trending slowly and steadily higher, trailed by all its moving averages.
Note: If you buy these cheap marijuana stocks, consider becoming a reader of my Cabot Marijuana Investor advisory so I can tell you when to sell! Click here to learn more.
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