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Most marijuana stocks were defeated in October. Once flying high Tilray (NASDAQ: TLRY) plunged more than 30%, even though it still boasts the highest market capitalization of its peers. But not all marijuana stocks experienced misery last month. Actions of House of origin (NASDAQOTH: ORHOF), formerly known as CannaRoyalty, actually ended October up slightly.
Which of these two marijuana stocks is the best choice for long-term investors? Here's how Tilray and Origin House compare.
Source of the image: Getty Images.
The Tilray case
We can summarize the argument in favor of the purchase of Tilray in two sentences: The global market for marijuana will be huge. Tilray will be a major player in this huge market.
There are probably few who would say that the first statement is false. Many might, however, dispute the magnitude of the global marijuana market. Tilray's CEO, Brendan Kennedy, mentioned a $ 150 billion cannabis market. No matter even a figure close to this figure should give Tilray tremendous growth opportunities.
Regarding the second statement, Tilray is already a major player in the global marijuana market. The company has a lot of space in growth and is expected to rank fourth in terms of production capacity by 2020. Tilray is well positioned in the Canadian Marijuana market for recreational purposes.
More importantly, Tilray has strong operations in the international marijuana markets for medical purposes. The company exported cannabis for medical purposes to Europe before its peers. It is the only Canadian marijuana producer allowed to supply cannabis flowers and oils to Germany, the largest marijuana market outside of North America.
The Tilray production site in Portugal is an excellent springboard for supplying European markets. The company should be able to expand to the UK now that medical cannabis has been legalized. Tilray is also well positioned to benefit from the growth of medical marijuana markets in Australia and Latin America.
Tilray also has the opportunity to partner with a large company outside of the cannabis industry. In fact, Tilray has already teamed up with Sandoz Canada, a subsidiary of Novartisto jointly market medical cannabis products in Canada. Until now, Tilray has not yet signed a contract with a large company to target the recreational cannabis market, but it would likely be on the shortlist of alcohol manufacturers or tobacco companies seeking from a partner.
The Origin House case
The investment thesis for Origin House can also be summed up in two sentences: Canada is big, but California is huge. And Origin House is well positioned to succeed in both markets.
The marijuana market in California is really huge. In 2017, marijuana sales in the state amounted to about $ 3 billion. According to Arcview Market Research and BDS Analytics, this figure is expected to increase to $ 7.7 billion by 2022. By comparison, the Canadian marijuana market will reach approximately $ 5.4 billion in 2022.
Origin House is currently the largest marijuana distributor in the state of California. The company distributes more than 130 brand-name cannabis products to 70% of state dispensaries. Origin House also markets several of its own brands and plans to add to its product line over the next year.
While Origin House is poised to capitalize on the warming of the marijuana market in California, it also hopes to capitalize on the growth of the Canadian marijuana market for recreational purposes. Origin House is acquiring 180 Smoke, the largest vape retailer in Canada. 180 Smoke has 26 stores as well as strong online operations.
Beacon Securities, a Canadian-based investment firm, believes distributors and retailers could be the "masters" of cannabis brands. This assessment is interesting, as distributors and retailers have the most knowledge about the products that appeal to consumers the most. This could bode well for the prospects of Origine House over the next few years.
The investment company expects Origin House to generate revenue of approximately $ 325 million by 2020. Marc Lustig, CEO of Origin House, expects the company to be profitable in 2019 The market capitalization of the company currently oscillating around $ 300 million. a lot of room for growth.
Best marijuana stock
I think Tilray's arguments are correct, but they also omit two important facts. First, the United States remains the largest marijuana market in the world, but Tilray is not yet able to establish a significant presence there. Second, it will take a long time for the global marijuana market to reach levels that can justify Tilray's current market capitalization.
Origin House, on the other hand, looks like a very good deal at its current price. As the California market matures and the company rolls out its strategy, the House of Commons stock price should increase significantly. In my opinion, Origin House is the big winner against Tilray.
However, there are risks for Origin House. Marijuana remains illegal at the federal level in the United States and the California market may not grow as quickly as expected. However, I do not consider that these risks are excessively disturbing at this stage. I think that Origin House is one of the best marijuana stocks to buy after the big collapse of most other marijuana stocks.
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