Legal marijuana projects as one of the fastest-growing industries in the world over the next decade. Regardless of which Wall Street forecast you favor, growth prospects suggest a healthy double-digit compound annual growth rate for the industry through 2030, and hopefully plenty of opportunity for investors to make some green while cannabis companies sell the green.
Unfortunately, there wasn’t much green made in August. Following a month where a mere nine pot stocks rose in July, August fared little better, with only 10 marijuana stocks ending in the green. Comparatively, 48 of the 58 direct and ancillary players I follow moved lower last month, with 34 shedding at least 10% of their value, not including rounding. Put another way, almost 3 out of 5 pot stocks lost 10% or more last month.
For many of these cannabis stocks, there are viable reasons for this decline…
namely, they and the industry have a lot of growing up to do. Persistent supply issues in Canada, high tax rates in the U.S. on legal weed, and resilient black markets throughout North America are making life difficult for pot stocks.
Yet, three of these double-digit percentage losers last month look like truly intriguing bargains. Despite being clobbered, these marijuana stocks are climbing the ranks as being particularly attractive.
Despite relatively nothing in the way of news, Atlantic-based grower OrganiGram Holdings (NASDAQ:OGI) was taken to the woodshed in August, losing 30% of its value. Since touching an intraday high of $8.44 on May 21, the day it officially uplisted from the over-the-counter (OTC) exchange to the Nasdaq, OrganiGram has lost half of its value, through this past weekend.
The problems plaguing OrganiGram are pretty consistent throughout the industry. In particular:
- Health Canada has been slow to approve cultivation and sales licenses;
- Individual provinces have been slow to approve licenses for physical retail stores; and
- The launch of derivative cannabis products, such as edibles and beverages, was delayed by a couple of months, to mid-December, when October was initially seen as the target date.
However, OrganiGram has a lot working in its favor. It has the geographic advantage of being the only major grower located in the Atlantic region of Canada. Based in New Brunswick, the company should have an easy path to significant market share in the less-populated Eastern provinces of Canada. Although, keep in mind that these less-populated Atlantic provinces have shown the highest adult-use rates for cannabis in Canada.
To build on this point, OrganiGram is also one of just a handful of growers to have supply deals in place with all 10 provinces. Thus, it has the geographic advantage of being located in the Atlantic, but it still has access to all major markets.
Most important, OrganiGram is a leader in production efficiency. Management projects 113,000 kilos of peak annual output, which works out to more than 230 grams per square foot, based on the cultivation space at its Moncton campus. With most major growers likely producing between 75 grams per square foot and 125 grams per square foot, OrganiGram is more or less doubling up its peers. Investors can thank the company’s unique three-tiered growing system for its superior efficiency.
My suspicion is that OrganiGram will be one of the first pot stocks to be profitable on an operating basis, without the aid of a bunch of one-time benefits and fair-value adjustments…
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