The marijuana industry is expected to grow by leaps and bounds, according to most Wall Street forecasts. Cowen Group, which happens to be the biggest green rush cheerleader on Wall Street, has projected $75 billion in global annual sales by 2030, up from a previous forecast of $50 billion by 2026.
However, this has also been an industry with far more hiccups than anyone could have imagined. Supply constraints have plagued the Canadian market since recreational marijuana sales commenced on Oct. 17, with January data from Statistics Canada showing that cannabis stores sold almost 5% less weed in January than they did in the sequential month (December 2018). Regulatory red tape along with compliant packaging shortages have made the initial launch of adult-use weed very bumpy — and ultimately that’s brought into question the valuations of most pot stocks.
Although most marijuana stocks have soared to the heavens since the beginning of 2016, there are a few that still look relatively attractive compared to their long-term growth prospects. While there’s zero guarantee that I actually buy a marijuana stock, there are three pot stocks that are nearing a point where I’m seriously considering taking a nibble. Again, not a recommendation from yours truly to go out and buy these stocks, but I’m personally considering it…
CannTrust Holdings
Following a more than 25% tumble since reporting its fourth-quarter operating results, CannTrust Holdings (NYSE:CTST) is quickly rising the ranks as a marijuana stock I’d consider adding to my portfolio.
For the quarter, CannTrust delivered $16.2 million Canadian in sales, a 132% increase from the prior-year period, as its active patient count increased 57% and the amount of cannabis it sold more than quadrupled. Unfortunately, rising expenditures pushed CannTrust to a net loss of CA$0.26 per share, which was considerably wider than expected, with gross margin of a disappointing 35%.
However, the biggest question mark heading into CannTrust’s recent earnings report wasn’t how much cannabis it’d sell. Instead, it was what the company’s production capacity would look like moving forward. After a protracted stalemate with the town of Pelham, the company received the go-ahead to expand its hydroponic-focused Niagara grow farm by 390,000 square feet in January. This adds to the 450,000 square feet already completed, but is 210,000 square feet less than CannTrust had been angling for. Investors sort of knew the company would come in around 100,000 kilos at peak output with the long-awaited phase 3 expansion approval, but figured additional production might be on the docket.
With the release of CannTrust’s operating results, we learned that the company has entered into a letter of intent to acquire 200 acres of land. This land will be used for outdoor cannabis growing and yield between 100,000 kilos and 200,000 kilos a year, effectively doubling or tripling the company’s peak annual output. It’s unclear what the cost-per-gram might be on this outdoor production, but economies of scale should really begin to kick in at such high peak output figures.
When comparing it to its peers…
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