Cannabis stocks once again topped investors’ watch lists, after a number of catalysts recently pushed stocks in a wide range of industry players. First of all, legalized cannabis sales surpassed Canadian black market sales for the first time in the third quarter of 2020 this summer. The growing competitiveness of legitimate manufacturers means they’ll be able to convert consumers from an illegal marketplace worth CA $ 7 billion.
On Tuesday, Arizona, Montana, New Jersey and South Dakota became the latest states to legalize recreational marijuana. Mississippi also approves this drug for medical use. As the cannabis sector begins to boom in the US and Canada, perhaps there has never been a better time to start investing in cannabis stocks. Today, let̵7;s take a look at the top two businesses to consider adding to your cannabis portfolio in case the price continues to rise.
Only dealing with sales of 3.5 times and 1.1 times the book value, it might be surprising to see that Aphria‘S (NASDAQ: APHA) Valuations are at their lowest despite being Canada’s largest cannabis company in terms of total sales. The company controls 14% of Canada’s marijuana market share, which is 20% higher than its competition Canopy Growth Corp (NYSE: CGC). Altogether, Aphria’s total sales from recreational cannabis, medical marijuana, vape, edibles, and distribution of Aphria reached CA $ 145.7 million in the first quarter of 2021, ending August 31. , up 16% over the same period last year.
Non-cash operating income (EBITDA) also improved to CA $ 10 million from CA $ 8.6 million in Q4 2020. With net income of CA $ 5.1 million, or CA $ 0.02 per share, the company is closer to breaking down as well.
However, the biggest bullish signal for Aphria comes from its market dynamics. Currently, the company is on track to sell more than 83,000 kg of marijuana per year based on published Q1 2021 sales figures annually. This is not too far from its production capacity of 110,000 kg per year. The difference is very small compared to many of Aphria’s colleagues, who are trying to strike a difficult balance between cannabis supply and demand.
When a cannabis company can sell off the inventory they can produce, the company doesn’t need to devalue its facilities nor wipe out the goods it cannot. sold due to lackluster consumer demand. If the effort to achieve returns continues to pay off, investors can reestablish hope that Aphria will end its stock dilution. Over the past three years, the company’s outstanding shares have increased by nearly 41% to 287.5 million.
Recently, however, Aphria has not tapped into its $ 100 million stock issue. The company was struggling with nearly CA $ 400 million in cash compared with about CA $ 140 million in long-term debt and CA $ 270 million in convertible notes. Overall, with strong sales growth, high valuations and excellent liquidity, Aphria is a top choice for investors looking to buy cannabis stocks at bargain prices. On November 5, Aphria made another interesting move in the acquisition of American brewing company SW Brewing for $ 300 million, placing the potential synergy for marijuana-laced beverages as part of product supply expansion.
2. Curaleaf Holdings
While shares of Aphria are known for their low valuations, the American cannabis company Curaleaf Holdings (OTC: CURLF) Has captured investor attention thanks to the recent three-digit revenue growth. In the second quarter of 2020 that ended June 30, Curaleaf’s revenue increased a staggering 142% year over year to $ 117.5 million. Fortunately, as the company’s revenue grew, so did its earnings. The company managed to increase its adjusted EBITDA more than sixfold to $ 28 million in the same period.
Unlike Aphria, Curaleaf is currently profitable, generating over $ 23.4 million in operating cash each quarter. One of the company’s most profitable segments is the medical cannabis business. In June 2019, Curaleaf served 67,600 medical marijuana users and brought in revenue of $ 14 million per month. As of June 2020, the company’s medical marijuana customer base has grown to 102,000 and now generates monthly sales of $ 25.3 million.
Curaleaf currently operates 93 retail cannabis stores in 23 states and distributes its products to more than 1,150 stores. The company has the No. 1 market share across important states such as New York, New Jersey, Pennsylvania and Massachusetts. Voters approved legalization of recreational marijuana in New Jersey on Tuesday, which could put pressure on neighboring states to do the same.
At first glance, the Curaleaf seems 14.1 times more expensive than sales and 7.9 times book value. However, the investors are said to be well-deserved for their money, considering the company has more than doubled its revenue in the past year. Curaleaf is a great choice for investors who are passionate about growth stocks in the cannabis industry.
Why not choose both?
The Aphria is clearly the better value pick while the Curaleaf is the duo’s better growth pick. However, investors looking for more stocks to choose from may consider adding both to their portfolios. That move will spread safer bets on two stocks and help investors experience the ups and downs of both the US and Canadian markets.