At this time last year, cannabis stocks could do no wrong. That’s because Canada had just become the first industrialized country in the world to legalize recreational marijuana on Oct. 17, 2018. Between this milestone, legalization, and a steady progression of U.S. states giving cannabis the green light, the future for marijuana was, aptly, budding.
However, the industry now looks like a shell of its former self. Most brand-name pot stocks…
have shed half of their value, if not more. In Canada, supply issues have been persistent since day one of legalization, and they’ll likely continue as derivative pot products begin hitting the market. Meanwhile, legalized states have been plagued by high tax rates and an unrelenting black market.
But according to some very lofty price targets from Wall Street, two marijuana stocks appear to have all-or-nothing potential.
KushCo Holdings: Implied upside of 423%
Pretty much no marijuana stock offers more upside, at least according to Wall Street’s consensus price target, than ancillary player KushCo Holdings (OTC:KSHB). Wall Street forecasts KushCo to more than quintuple in value, albeit that’s probably a reflection of the stock’s 80% loss in value over the past three months.
There’s no doubt KushCo offers a lot of intrigue as it works behind the scenes for the global weed industry. Right now, the company is generating most of its revenue from the sale of vaporizers. As alternative forms of consumption become popular in the pot industry, the expectation is that vapes will lead the charge among these derivative products. According to a report from Cowen Group, vapes are expected to account for 23% of all U.S. marijuana sales, which would only trail dried cannabis flower in aggregate revenue.
However, KushCo’s two other revenue streams shouldn’t be slouches, either. This is a company with a packaging and branding business that should gain steam as cannabis use becomes more mainstream. With packaging regulations remaining strict, KushCo provides that extra set of eyes to businesses to ensure compliance and to help cannabis growers stand out.
Likewise, the company’s hydrocarbon gases and solvents segment should thrive as the push to derivatives ramps up. Hydrocarbon gases are an essential input to the production of high-margin cannabis oils, while solvents are used in the production on concentrates. It’s no secret that derivatives offer much better margins than dried flower, which means the inputs KushCo supplies should only grow in demand.
On the other side of the coin, KushCo has two problems. Firstly, vape-related health concerns are a direct threat to the company’s vaporizer sales, which currently account for a large chunk of quarterly revenue. According to the Centers for Disease Control and Prevention (CDC), 33 people have died from mysterious lung illnesses associated with vaping, as of Oct. 15, and the agency isn’t certain what’s responsible for these illnesses. The CDC’s only recommendation for the time being is that users avoid consuming tetrahydrocannabinol (THC) via vape liquids. THC being the cannabinoid primarily found in cannabis plants that gets users high.
The other concern has to do with cash. KushCo recently raised $30.2 million at an offering price that was well below where the stock had recently been trading. While it’s not uncommon for cannabis stocks to raise capital, the fact that this offering was so far below the previous day’s closing price is alarming.
What we have here is a company that recently confirmed its full-year sales guidance and appears to be a go-to cannabis middleman, but continues to lose money and is facing a huge headwind for its largest sales generator. That’s the perfect definition of an all-or-nothing pot stock…
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