The vast majority of cannabis stocks flat out wilted under the summer heat in 2019. Top dogs like Aphria, Aurora Cannabis, and Canopy Growth all saw their market caps take a whopping 20% haircut in just the past 30 days. The industry’s recent move lower reflected a variety of negative headwinds, such as abrupt changes in management at bellwether companies like Canopy Growth and MedMen Enterprises, a fair number of scandals, looming oversupply in the Canadian adult-use market, as well as a host of underwhelming earnings reports.
The legal cannabis space, though, arguably needed this reality check. Stock valuations have gotten way out of hand this year, especially in light of the fact that the biggest potential markets have yet to fully legalize either medical or recreational marijuana.
Given the chaotic nature of the nascent cannabis market, it’s important for investors to carefully consider which companies have the right mix of ingredients to first weather this ongoing maelstrom, and then become profitable entities over the long run…
Auxly Cannabis Group (NASDAQOTH:CBWTF) and Charlotte’s Web Holdings (NASDAQOTH:CWBHF) stand out as two that might have what it takes — making them strong potential additions to any cannabis-oriented portfolio this month. Here’s a brief overview of these promising cannabis stocks.
A hidden gem
Auxly might be a penny stock, but that doesn’t mean this small-cap cannabis company isn’t worth your attention right now. It’s gearing up to become a major player in the derivative cannabis product space, once this segment officially opens in Canada this December.
Branded derivative products such as edibles, extracts, and topicals have both higher profit margins than dried flowers and inherently stronger economic moats. While growing your own weed isn’t exactly rocket science, it is considerably more challenging for the average consumer — or even black market retailers — to knock out high-quality extracts. So Auxly’s strategy of prioritizing branded derivatives has a solid rationale behind it — even though this slow-motion plan of attack has forced the company to repeatedly dilute shareholders to stay afloat.
Now, Auxly’s moment in the sun is finally close at hand. Based on Canada’s regulatory calendar, derivative products will start showing up on dispensary shelves in December, so Auxly’s top line should begin growing by leaps and bounds next year. Wall Street, in fact, forecasts its sales will increase by an astronomical 3,169% in 2020.
The real reason to buy this stock now, however, is Auxly’s newly minted partnership with U.K. tobacco giant Imperial Brands, which bought a 19.9% stake in the cannabis specialist and granted it access to its world-class vape platform. Although this deal is nowhere near the size of either Canopy’s tie-up with Constellation Brands or Cronos Group‘s megadeal with Altria, it should provide Auxly the capital to stay afloat while the high-value derivative cannabis market comes online. So while this growth story won’t materialize overnight, Auxly does appear to be on the right track.
A leader in the rapidly emerging hemp cannabidiol (CBD) space
The market for hemp-based CBD products is forecast to hit…
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