The Canada-listed cannabis stock picks we’ve revealed have the potential to post some big gains in 2020
SmallCapPower | January 6, 2020: Cannabis stocks were in an eight-month bear market during 2019.The Horizons Marijuana Life Sciences Index ETF (HMMJ) lost ~60% of its value since March 2019. However, the cannabis industry is not going away and as cannabis regulations are expected to loosen in the United States, and globally, some cannabis companies could be set to rally in 2020. Today we have uncovered four cannabis stock picks that we think could outperform in 2020.
*Share price data as at January 3, 2019, data obtained from S&P Capital IQ
MediPharm Labs Corp. (TSX:LABS) – $4.05
MediPharm Labs is the first company in Canada to receive a license to become a cannabis oil processor without first having a cultivation license. MediPharm Labs produces purified, pharmaceutical-like cannabis oils and concentrates through its cGMP and ISO standard clean rooms laboratory. MediPharm Labs has invested in expert, state-of-the-art technology and extraction methods to deliver safe cannabis products to consumers and patients. LABS is currently one of the only cannabis companies to record a profit from operations, has a solid balance sheet with $70M in credit facilities available, and is currently in the Top 3 in terms of total cannabis revenue in Canada. With MediPharm’s solid financial and operating results, and global reach (Australia extraction facility recently got licensed), and as a pharmaceutical API supply (recently got its EU GMP certification permitting API export to Europe), we believe LABS could outperform in 2020.
- Market Cap: $530.0M
- 30-Day Return: +18.4%
- 1-Year Return: +132.8%
- 30-Day Average Trading Volume: 649,950
Cronos Group Inc. (TSX:CRON) – $9.30
Cronos is a globally-diversified and vertically-integrated cannabis company that currently has operations in five continents. The Company has two wholly-owned Canadian licensed producers: 1) Peace Naturals Project Inc., a global health and wellness platform; and 2) Original BC Ltd., a recreational adult-use Canadian licensed producer that is located in Okanagan Valley, BC. Cronos’ business strategy is to focus on building an international iconic brand portfolio in addition to developing its intellectual property. We chose Cronos Group as a 2020 top pick because the Company appears to be acting prudently in how it spends that money. Cronos Group’s quarterly cash burn rate (cash flow from operations minus capex) is approximately ~$43 million per quarter, based on the average of the last four quarters. With a cash war chest (CRON has 11.5 years of cash on hand), the Company can wait patiently for the right time to spend the money on acquisitions or R&D that will be accretive to EPS.
- Market Cap: $3,243.7M
- 30-Day Return: +6.9%
- 1-Year Return: -40.5%
- 30-Day Average Trading Volume: 914,250
Village Farms International, Inc. (TSX:VFF) – $7.91
Village Farms International is a vertically-integrated greenhouse grower in North America. The Company uses hydroponic growing methods in glass-enclosed facilities to grow its premium-quality products. Currently, the Company has six greenhouses that cover a total of 9.2M sq. ft in Canada and the U.S. As well, the Company has entered into the cannabis space with its joint ventures (JV) with Emerald Health Therapeutics and Nature Crisp LLC to create “Pure Sunfarms Corporation” and “Village Fields Hemp USA LLC,” respectively. We consider VFF a top pick due to its tight capital structure (management ownership is ~30%), management’s proven ability to grow tomatoes, cumbers, and bell pepper efficiently at slim margins, and for the potential hemp play via VFFs greenhouse in the United States.
- Market Cap: $414.5M
- 30-Day Return: -4.7%
- 1-Year Return: +66.5%
- 30-Day Average Trading Volume: 407,350
Trulieve Cannabis Corp. (CSE:TRUL) – $14.55
Trulieve is a seed-to-sale operation in the state of Florida, with plans to acquire additional facilities in Massachusetts, California, and Connecticut. The Company claims to be the largest, fully-licensed medical cannabis company in the State of Florida, with over 1.6M sq. ft of cultivation space yielding ~55,000 kg annually. Trulieve is in the process of constructing an additional 72,000 sq. ft, which would increase production capacity by 10,000kg. TRUL also has a network of 37 dispensaries selling branded products, with a total of 240 stock keeping units (SKUs) and over 203,600 patients as of August 31, 2019. Trulieve is anticipating having 44 dispensaries open by year end. Trulieve presently has ~50% market share in Florida and is currently the only MSO that has positive cash flow from operations. With legalization of recreational cannabis potentially on the ballet in Florida during 2020, we think TRUL stock could have some strong momentum.
- Market Cap: $1,605.5M
- 30-Day Return: -15.9%
- 1-Year Return: +31.8%
- 30-Day Average Trading Volume: 449,430
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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