Cannabis stocks soar as US legalization continues

Cannabis stocks are rising to new heights as the smoke begins to clear around the 2020 election.

Shares in big weed companies soared on Thursday as investors began to price in a victory for the supposed pot-friendly presidential Joe Biden, even as five US states — including the conservative red state Mississippi — approved measures to legalize the stuff.

Aurora Cannabis (ACB), a Canada-based weed grower, saw its share price surge 42 percent, while its Vancouver-based rival Tilray (TLRY) — whose backers including Silicon Valley billionaire Peter Thiel — got a 30-percent boost. Canopy Growth (CDC) — which in September unveiled a line of CBD-infused comestibles with Martha Stewart — surged 12 percent on the day.

The big moves came a day after pot stocks got smoked on word that the Senate would likely remain under GOP control, with Sen. Mitch McConnell continuing to oppose legalizing marijuana. But fears ebbed early Thursday as investors digested the news from Mississippi, which passed a law making marijuana legal for medical use.

Cannabis stocks are rising to new heights as the smoke begins to clear around the 2020 election.

Shares in big weed companies soared on Thursday as investors began to price in a victory for pot-friendly presidential hopeful Joe Biden, even as five US states — including the conservative red state Mississippi — approved measures to legalize the stuff.

Aurora Cannabis, a Canada-based weed grower, saw its share price surge 42 percent, while its Vancouver-based rival Tilray — whose backers including Silicon Valley billionaire Peter Thiel — got a 30-percent boost. Canopy Growth — which in September unveiled a line of CBD-infused comestibles with Martha Stewart — surged 12 percent on the day.

The big moves came a day after pot stocks got smoked on word that the Senate would likely remain under GOP control, with Sen. Mitch McConnell continuing to oppose legalizing marijuana. But fears ebbed early Thursday as investors digested the news from Mississippi, which passed a law making marijuana legal for medical use.

Cannabis companies have been in a holding pattern for almost a decade after Washington and California legalized weed for recreational use in 2012. Since then, the industry has ebbed and flowed as legalization has gone state-by-state in the US, depriving pot companies of access to banking and forcing most of the public ones to trade on Canadian exchanges.

1 cannabis stock to invest in right now

Aphria (APHA)

Trading at merely 3.5 times sales and 1.1 times book value, it may be surprising that to see that Aphria‘s (APHA) valuation is at rock bottom despite being the biggest marijuana company in Canada in terms of gross revenue. The company controls 14% of Canada’s cannabis market share, which is 20% more than competitor Canopy Growth Corp. All combined, Aphria’s recreational cannabis, medical cannabis, vape, edibles, and distribution revenue totaled CA$145.7 million during the first quarter of 2021, which ended Aug. 31,  representing an increase of 16% year over year.

Its operating income excluding non-cash items (EBITDA) also improved to CA$10 million from CA$8.6 million in the fourth quarter of 2020. With a net income of CA$5.1 million, or CA$0.02 per share, the company is getting closer to breaking even. 

The biggest bullish signal for Aphria, however, comes from its market dynamics. Right now, the company is on track to sell more than 83,000 kg of cannabis per year based on its annualized Q1 2021 sales figures. That is not too far off from its production capacity of 110,000 kg per year. The discrepancy is strikingly small compared to many of Aphria’s peers, who are attempting to strike the tricky balance between cannabis supply and demand.

When a marijuana company can sell as much inventory as it can produce, it does not need to take impairments to the value of its facilities nor write off goods it cannot sell due to lackluster consumer demand. If its efforts to attain profitability continue to pay off, investors might reignite their hope that Aphria will put an end to its stock dilutions. Over the past three years, the company’s shares outstanding have increased by nearly 41% to 287.5 million. 

Recently, however, Aphria has not tapped into its $100 million share issuance program. The company is sitting tight with close to CA$400 million in cash compared to approximately CA$140 million in long term debt and CA$270 million in convertible notes. Overall, with its strong sales growth, great valuation, and superb liquidity, Aphria is a top choice for investors looking to buy marijuana stocks at a bargain. On Nov. 5, Aphria made another exciting move in acquiring American beer producer SW Brewing Company for $300 million, putting potential synergies on the table for cannabis infused beverages as part of its expanding product offerings.

👆 Sign up now and don’t miss these hot stock picks!

We don’t spam!


Warning: sprintf(): Too few arguments in /home/monevphj/public_html/wp-content/plugins/wp-user-avatar/includes/class-wp-user-avatar-functions.php on line 668
Default image
Tim Rolle
Investor of 6 years and Managing Editor of Money Midnight, a news outlet focused on highly profitable investment ideas and bold underground research.
Articles: 110