The Canadian marijuana stocks we’ve weeded out have solid cash holdings and little debt going into the Cannabis 2.0 and the legalization of edibles in 2020
SmallCapPower | October 8, 2019: Recently, cannabis companies have experience constrained access to capital markets. This can be seen through two recent capital raises in the sector. Cresco Labs (CSE:CL) had to raise money at $10.00, which was a discount to the company’s share price ($10.50) at the time. Recently, iAnthus (CSE:IAN) raised a $100M convertible note at a 13% interest rate. Both companies’ share prices are down from the announcements. As such, it is important that cannabis companies have enough cash, low debt, and a good inventory position to sustain themselves thorough to the legalization of edibles. Today, we have identified four Canadian marijuana stocks with strong balance sheets going into legalization of edibles in 2020.
*Share prices as at October 4, 2019, data obtained from S&P Capital IQ
**Balance Sheet data as of last fiscal quarter
WeedMD Inc. (TSXV:WMD) – $1.40
WeedMD is a Canadian federally-licensed cultivator and distributor of cannabis and cannabis extracts for medical and recreational markets. As of now, the Company owns and operates two licensed facilities: 1) in Aylmer, Ontario, a 26,000 sq. ft. facility and; 2) a 158-acre property located in Strathroy, Ontario, which also includes a 616,000 sq. ft. greenhouse facility. Overall, WeedMD has 136,000 sq.ft of licensed production space with 150,000 kg of fully-funded capacity. Additionally, the Company is expecting to expand its footprint to more than 550,000 sq.ft. of indoor and greenhouse production space by the end of 2019. On May 31, 2019, the Company received approval for 27 acres (1.1M sq.ft) of outdoor cultivation space. On August 14, 2019, the Company announced that 40 of its medical cannabis strains were included in the completion of the first phase of TruTrace Technologies’ medical cannabis verification pilot project with Shoppers Drug Mart.
- Market Cap: $160.2M
- 90-Day Return: -12.5%
- YTD-Return: 1.5%
- 90-Day Average Trading Volume: 268,140
- Cash + ST Investments: $12.0M
- Debt: $35.4M
- Inventory: $12.0M
VIVO Cannabis Inc. (TSXV:VIVO) – $0.36
Formerly known as ABcann Global Corporation, VIVO Cannabis manufactures and distributes medical cannabis. The Company gained its production and sales license from Health Canada in April 2018. VIVO’s capacity estimates for 2019 include 1,500 kg of indoor cannabis with an additional 14,000 kg grown in greenhouse facilities. To increase supply and distribution, the Company entered into agreements relating to strategic equity investments in Canadian cannabis retailers National Access Cannabis Corp., Choom Holdings Inc, and Westleaf Cannabis Inc, all of which either have operations within Ontario or have plans on operating in Ontario. On August 6, VIVO announced that the Company’s wholly-owned subsidiary, ABcann Medicinals Inc, has been granted a Standard Cultivation license from Health Canada for its Kimmetts facility in Napanee, Ontario.
- Market Cap: $106.5M
- 90-Day Return: -34.9%
- YTD-Return: -51.4%
- 90-Day Average Trading Volume: 436,880
- Cash + ST Investments: $68.9M
- Debt: $30.9M
- Inventory: $13.3M
Fire & Flower Holdings Corp. (TSX:FAF) – $1.20
Fire and Flower currently operates 17 cannabis retail outlets (9 in Alberta, 6 in Saskatchewan, and 2 in Ontario). The Company has licenses for an additional 6 retail locations in Alberta, which are fully built but are awaiting provincial licenses, two of which are currently operating as cannabis accessories stores. On July 23, 2019, Fire and Flower announced that it had received a license for a retail store in the Yukon, bringing the total branded retail locations the Company owns to 24. On July 24, 2019, Fire and Flower announced that it had entered into a subscription agreement with Alimentation Couche-Tard Inc. The sub agreement allows for Couche-Tard to provide Fire & Flower with an investment in aggregate of up to $380M. The initial tranche of the agreement is a convertible debenture for a 9.9% ownership that converts at $1.07 per common share when Fire & Flower hits a milestone of 45 licensed stores operational by December 31, 2020. The initial 9.9% convertible represents 1.5x and 11.4x takeout multiples based on F2021E revenues and EBITDA of $175.6M and $23.1M (consensus estimates), respectively. This implies a slight premium to small-cap Canadian cannabis companies with market caps between $70M to $200M, which are trading at 1.0x and 5.6x F2021 revenues and EBITDA multiples, respectively, at the time of the announcement.
- Market Cap: $146.5M
- 90-Day Return: +7.1%
- YTD-Return: N/A
- 90-Day Average Trading Volume: 453,110
- Cash + ST Investments: $30.6M
- Debt: $42.7M
- Inventory: $6.5M
Cannabis Growth Opportunity Corporation (CSE:CGOC) – $1.00
CGOC is an investment corporation that offers unique global exposure to the emerging global cannabis sector. CGOC’s main objective is to provide shareholders long-term total return through its actively-managed portfolio of securities, both public and private, operating in, or that derive a portion of their revenue or earnings from products or services related to the cannabis industry. CGOC is invested in companies operating in Canada, the U.S., Europe, LATAM, and Israel, with an investment split across the private and public portfolios of 40% and 60%, respectively. CGOC’s Top 10 public investments as of September 16, 2019 are: Bhang Inc (CSE: BHNG), Grassroots Cannabis, (not yet listed), Heritage Cannabis (CSE: CANN), Jushi Holdings Inc. (NEO: JUSH.B), LPF Investment Corp. (“Loudpack”, not yet listed) Next Green Wave (CSE: NGW), Planet 13 Holdings Inc. (CSE: PLTH), TerrAscend Corp. (CSE: TER), and VIVO Cannabis (TSXV: VIVO). As of September 19, 2019, CGOC had a net asset value (NAV) per share of $2.85, representing growth of 23% since the IPO. Of note, CGOC’s current cash on hand is greater than its market cap.
- Market Cap: $15.5M
- 90-Day Return: -39.4%
- YTD-Return: +3.1%
- 90-Day Average Trading Volume: 25,710
- Cash + ST Investments: $45.6M
- Debt: $0.0M
- Inventory: $0.0M
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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