One week from today, we’ll enter a new year and a new decade, which for marijuana stock investors can’t come a moment too soon. Although cannabis stocks have been on fire for years, 2019 was the first reality check for investors in some time.
Following an incredible first quarter that witnessed more than a dozen pot stocks rise by at least 70%, the subsequent nine months since the end of March have been spent in a seemingly never-ending downtrend. Supply issues throughout Canada and…
high tax rates in select U.S. states have squashed any near-term hope of profits for pot stocks and made cannabis the proverbial lump of coal left in the stockings of those who misbehave.
But, believe it or not, a few cannabis stocks actually made Santa’s nice list in 2019, and it has everything to do with their income statements. In an industry where losses abound, these pot stocks have stood out for all the right reasons.
By “no-nonsense profits,” I mean a simple scenario where sales are higher than cost of goods/services and recurring operating expenses, without any one-time benefits, costs, or fair-value adjustments being factored into the equation.
What’s really impressive about MediPharm’s ability to generate a profit in the second and third quarters is that the company only began processing services for hemp and cannabis biomass in Canada in November of 2018. In other words, it pretty much took a quarter and a half, even with ongoing spending to ramp up capacity, for MediPharm Labs to go from concept to what looks like recurring profitability.
As an extraction-services provider, MediPharm Labs is right in the thick of the derivatives push in Canada — derivatives being alternative consumption options, such as edibles, vapes, infused beverages, tinctures, topicals, and concentrates. Since these deliver considerably better margins than traditional dried cannabis flower sales, it’s in growers’ interests to devote a significant portion of their lineup to these products. That makes MediPharm an essential middleman in the derivative movement.
Best of all, the company’s processing contracts are typically for 18 months, if not longer. This means it’s not signing one-off deals, but rather securing predictable cash flow with these contracts for the foreseeable future.
Vertically integrated multistate operator (MSO) Trulieve Cannabis (OTC:TCNNF), which is based in Florida, also finds itself on Santa’s nice list after continuing to pile on no-nonsense profits throughout 2019.
Although Trulieve Cannabis has a presence in a handful of states, including California, Massachusetts, and Connecticut, it’s been laser-focused on opening dispensaries in its home market of Florida, where only medical marijuana is currently legal. Recently, Trulieve opened its 40th retail location in the Sunshine State, which is a big reason it’s been able to successfully gobble up so much market share. Rather than trying to establish a presence in as many states as possible, like most MSOs, focusing on Florida has led to considerably lower expenses and better brand-building for Trulieve.
Just how good has Trulieve Cannabis been? Through the first nine months of the year, the company generated $173.1 million in sales, up 159% from the prior-year period, while operating expenses grew almost on par (up 161%) to $50.6 million. For practically every MSO and Canadian pot stock, expense growth has far outstripped sales growth. Even removing one-time benefits and fair-value adjustments, Trulieve’s operating income through the first nine months of 2019 is nearly $61 million.
With Florida residents potentially voting on recreational weed legalization in November of 2020, Trulieve’s market could continue to blossom…
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