3 penny marijuana stocks that are in fact major players – The Fool Motley

In ten years, investors could very well look back and claim that the cannabis industry is the greatest growth opportunity of our generation. We know that the demand is there given the tens of billions of dollars traded each year through illicit channels. It is simply an ongoing legalization and increasingly important efforts to transfer these black market pot sales to legal channels. If that happens, an annual business turnover of $ 75 billion by 2030 is easily achievable, according to a Wall Street company.

But what you may not realize is that while many major legal players have a multi-billion dollar market cap, they do not all match what a large cannabis company could do. look like. At present, three penny marijuana stocks should play a very important role in the Canadian pot industry.

Source of the image: Getty Images.

Auxly Cannabis Group

Auxly Cannabis Groupof (NASDAQOTH: CBWTF) market capitalization of $ 355 million, at the close of Wednesday, July 3, is hardly pedestrian. However, its share price of 0.60 USD 60 cents), does not exactly fit the definition of a company for which you expect to be a leader in the field of cannabis. But rest assured, Auxly may very well be the real deal.

Until about mid-2018, Auxly Cannabis Group was fully focused on its activities as a royalty company. In the same way that precious metals royalty companies pay cash to their license partners in exchange for sub-market metals, Auxly provides cash to producers in exchange for future cannabis production at a price. less than the market. This would allow the company to then sell that product, or a dried flower derivative (eg, oils, edibles, infused beverages, topicals, etc.) at the full market rate, thereby pocketing the difference in form. of profit.

Auxly changed its approach about a year ago, mainly because the royalty model did not leave much room for maneuver to reduce costs, but also because it would further help the company control its supply. She still has contracts with more than a dozen licensed producers, but she also has a joint venture and wholly-owned crop projects in her portfolio. In total, Auxly will control – and by control, I mean put on the market through its license partners, joint ventures and wholly-owned farms – about 170,000 pounds per year. There may be only five or six individual pot producers with a greater presence of marijuana at retail in Canada.

There are two reasons why the action of Auxly has received little investor love. First, he has issued a lot of fundraising efforts to fund his license agreements and his expansion as an exclusive property. These share issues tend to be dilutive for existing shareholders.

Second, the company has made it clear that it will delay its short-term dried flower sales in favor of higher margin derivatives later this year. Derivatives will go on sale at the earliest in mid-December. Although this is a positive long-term result for Auxly, this expectation has hurt the company's short-term operating results.

Despite its tiny stock market, Auxly is the product of a major Canadian marijuana company.

Source of the image: Getty Images.

Zenabis Global

Starting last Wednesday, a share of Zenabis Global (NASDAQOTH: ZBISF) You could get for only $ 1.45, which is the type of pocket money that we probably hang out in our sofa cushions. But as with Auxly, you can not judge a book on its cover.

Zenabis, which has a respectable market capitalization of $ 288 million, is currently among the 10 largest individual producers in Canada. According to a company presentation to investors, Zenabis Global plans to produce 131,300 kilos on an annual basis by August 2019. The bulk of this production will come from the company's maximum production campus at Atholville, at New Brunswick (34,300 kilos) and the expansion of its flagship campus in Langley, British Columbia (96,100 kilos).

What is truly remarkable about Zenabis Global is that it could only be the beginning of its annual production. The Langley campus rests on a 2.1 million square foot parcel of land that, if it was built, could accommodate up to 426,000 kilos of annual output, according to company estimates. This would allow Zenabis to achieve a peak capacity of more than 479,000 kilograms if it chose to fully develop its Langley campus. In addition, as the company recently announced that initial production exceeded the nominal capacity of a two-digit percentage in four of the first five months of 2019 (January to May), these robust production estimates could prove to be cautious.

In addition to a significant production, Zenabis also has two processing facilities that, when fully utilized, offer an annual extraction capacity of 183,600 kilos. Given that derivatives should play such an important role in the growth of the marijuana sector in Canada, the company's focus on portfolio diversification should have a positive impact on its operating margins. .

Obviously, Zenabis has a lot of work to do in terms of branding and building a name for itself in a cluttered industry. But a wholesale supply contract valued at nearly $ 23 million was announced last week with Tilray This is a good start. This is certainly a name to watch for investors.

Source of the image: Getty Images.

Aleafia Health

Another pot stock that may not look like much on the surface, but is actually a big player, is Aleafia Health (NASDAQOTH: ALEAF). Aleafia closed on Wednesday with a stock price of $ 1.01 and a market capitalization of $ 265 million.

Earlier this year, Aleafia finalized a transformational acquisition that allowed it to purchase Emblem as part of a share-only transaction. What made this merger so interesting is how similar the business models of these two companies were before they were merged. Both ran health and wellness clinics, as well as their own cannabis farms.

The idea behind the clinic model is that it allows a company to prescribe marijuana for medical purposes to patients who could benefit from it, and then (hopefully) to keep these patients in the network. selling them products in jars to the brand. Although recreational weeds are a much larger market than medical marijuana, medical patients tend to consume cannabis more frequently, to buy it more often and are much more likely than adult consumers to use cannabis. use high margin derivatives. This makes medical patients a product of choice, even with a legalized recreational pot in Canada.

Since the merger of their two companies, the new company Aleafia Health has forty health and wellness clinics and has the capacity to produce 138 000 kg of cannabis per year, at full operating capacity (98 000 kg of Aleafia and 40,000 kg of Emblem). Like Zenabis, these 138,000 kilograms place Aleafia Health among the top 10 producers in Canada.

The big question is how Aleafia Health will move so many weeds when it focuses primarily on patients in medicine. The company recently obtained a license from Health Canada to export cannabis-based products, including high-margin oils, to Australia, but will likely require significant supply contracts in Canada and any Europe to avoid any pressure on its margins. Nevertheless, like other penny stocks of marijuana here, this deserves a closer inspection.