The past six months have been an absolute whirlwind for the marijuana industry. In October, we witnessed the industry gain the legitimacy it’s sought for so long after Canada became the first industrialized country in the world to legalize recreational cannabis. Then, just weeks later, the U.S. midterm elections increased the number of states to have given the green light to medical cannabis to 33. A month later, President Trump signed the Farm Bill into law, legalizing hemp and hemp-derived cannabidiol products. At seemingly every turn, the outlook for the cannabis industry has been improving.
However, this is also a nascent industry — at least from a legal perspective. With dozens of cannabis growers — some public, some private — duking it out for market share, differentiation has been difficult. Some growers have been able to stand out because of their peak production potential, while others have thrust themselves onto investors’ radars by announcing a brand-name partnership. Ultimately, though, it’s operating margins that’ll separate the winners from the wannabes…
These pot stocks know how to grow
One of the most direct margin comparisons investors can make is by examining a pot grower’s yield per square foot. Generally speaking, growers that offer an above-average yield should generate better margins than their peers. While not all growers are necessarily forthcoming with their growing capacity square footage or peak annual production estimates, four marijuana stocks stand out as being on track to be well above the industry average of 100 grams of yield per square foot of growing space.
Flowr Corp.: 300 to 450 grams per square foot
At the top of the mountain, overlooking all other cannabis growers, is small-cap Flowr Corp.(NASDAQOTH:FLWPF), which I doubt most investors have heard of and even fewer would guess leads the pack in crop yield. According to a previous investor presentation from Flowr, the company expects to produce up to 60,000 kilograms of peak output annually by 2021, with the company netting 300 to 450 grams per square foot at its Kelowna campus in British Columbia.
What’s particularly exciting about Flowr is that it’s chosen to focus on ultra-premium cannabis production. There’s not a lot of competition for extremely high-grade cannabis, which is a plus. Additionally, premium pot comes with a considerably higher price point, which, when combined with its superior yield per square foot, should result in some very impressive operating margins, once at full capacity.
While not profitable at the moment with a current run rate of 5,000 kilograms per year, it’s a pot stock worth keeping a close eye on.
OrganiGram Holdings: 230 grams per square foot
OrganiGram Holdings (NASDAQOTH:OGRMF), the only major Atlantic-based grower, should also dazzle in terms of yield per square foot. The company’s CEO, Greg Engel, has been guiding investors to expect 113,000 kilograms of peak annual production. But this output will be generated from the company’s Moncton campus in New Brunswick, which spans just 490,000 square feet. That’s about 230 grams per square foot, or well over double the industry average.
One of the key reasons the company is able to outproduce its peers is…
Continue reading at THE MOTLEY FOOL
