The Horizons Marijuana Life Sciences ETF has been red-hot over the past year, climbing more than 65% and dwarfing the S&P 500‘s gains of 43%. For cannabis investors, that means many stocks are trading at inflated valuations. But if you are worried about missing out on opportunities in the sector, there are still plenty of stocks flying under the radar that could be great buys…
Auxly (OTC:CBWTF), IM Cannabis (NASDAQ:IMCC), and Clever Leaves (NASDAQ:CLVR) possess some exciting growth opportunities that could make them some of the best buys out there right now. While they likely won’t make you rich overnight, if you are willing to remain patient, they have the potential to deliver some great returns for your portfolio.
Canadian cannabis producer Auxly has seen its share price rise just 12% in the past 12 months. But it is slowly building up its business and expanding into dried flower products. Up until now, Auxly has taken a bit of a backwards approach, focusing on the edibles and vapes segment of the market (also known as “cannabis 2.0 products”), which weren’t legal until one year after Canada legalized marijuana in flower form. Most cannabis companies started with dried flower products and then moved into the new segment of the market. However, Auxly has been doing a great job there, announcing earlier this year that it led in market share in 2020 for 2.0 products in Canada.
Expanding into more conventional cannabis products will help to diversify the business while also continuing to grow its top line. The company last released its quarterly results on Nov. 30, showing that in the nine-month period ending Sept. 30, its revenue totaled CA$31.9 million. That represented growth of 514% year-over-year, though the company still incurred an adjusted EBITDA loss of CA$24.2 million.
On April 20, the company’s stock moved onto Canada’s main exchange, the TSX (it was previously on the smaller TSX Venture Exchange). Being on a major exchange could help Auxly’s shares gain more traction. And if it also delivers strong sales numbers and its expansion into dried flower products proves to be successful, it may be one of the better-performing pot stocks from here on out. Today it trades at 7 times its revenue, which is a bargain compared with bigger names like Cronos and Canopy Growth, which are at price-to-sales (P/S) multiples of 61 and 25, respectively.
2. IM Cannabis
For those interested in some international exposure, IM Cannabis is another small but intriguing cannabis investment. It also recently moved onto a larger exchange, the Nasdaq, on March 1 (previously it was only listed on the Canadian Securities Exchange). The Israeli-based company is strategically located near Europe. And Israel stands to be one of the next countries to legalize pot, with its justice minister stating in November that a law will permit authorized stores to sell cannabis in nine months.
Research company BDSA projects that the international cannabis market (outside of Canada and the U.S.) will be worth $6.5 billion in 2025 — more than Canada’s, which will be at just $6.1 billion by then. Specifically, the European market is expected to grow at a compounded annual growth rate (CAGR) of 42%, which is a much faster pace than both North American markets (Canada’s average CAGR is projected to be 26% during the forecast period, while for the U.S. that number is 18%).
IM Cannabis is still a relatively small company, with sales over its most recent three quarters totaling just CA$11 million and net losses of CA$8.8 million. But the company could get a lot bigger. Last year it announced the acquisition of…
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