5 Underperforming Cannabis Stocks With Positive Earnings Outlook
Written by: Anthony Varrell – Technical 420
Earnings season is heating up for cannabis stocks and several industry leaders have already reported impressive quarterly results.
During the last year, we have seen several leading cannabis businesses record massive growth and this is a trend that we expect to continue. Several cannabis companies that we have been closely following have been reporting impressive numbers and we are bullish on this trend.
Investors need to be focused on cannabis companies that are executing on its previously announcements and are generating significant revenues. Today, we have highlighted 5 cannabis businesses that recently reported quarterly financial results and will continue to monitor these burgeoning cannabis businesses.
Sunniva: A California Cannabis Business to be Watching
Sunniva Inc. (SNN.CN) (SNNVF) is a California cannabis business that we have been closely following and want to highlight this opportunity after it reported strong first quarter financial results. Although these numbers showed strong growth, Canaccord Genuity lowered its price target on Sunniva following these results and this is an opportunity that we are watching.
During the quarter, Sunniva recorded a $3.5 million net loss on $14.2 million in revenue. When looking at the company’s divisions that contributed the most during the quarter from a revenue standpoint, CP Logistics (CPL) contributed $10.0 million, Full-Scale Distributors, LLC (FSD) contributed $2.4 million and Natural Health Services Ltd. (NHS) contributed $1.8 million during the period.
We are impressed with the numbers that were put up by CPL. The reason for the significant increase was related to the commencement of CPL’s packaging business line as well as increased sales from the extraction facility. During the last year, we have seen a significant increase in the amount of demand for cannabis concentrates in California and Sunniva has attractive leverage to this trend. We are bullish on the growth prospects associated with CPL and will monitor how this division continues to add value to the entire business.
Earlier this year, Sunniva closed the initial tranche of a non-brokered private placement of convertible debentures for gross proceeds of approximately $15 million. Shortly after closing this financing, the company closed a second tranche of the private placement for gross proceeds of approximately $3.3 million. The infusion of capital will allow Sunniva to execute on its business plan and we are favorable on the stronger balance sheet.
On April 25th, CPL completed the acquisition of a majority ownership interest in two licensed California cannabis companies, 420 Distribution, LLC and Coachella Distillation, LLC. The entities hold leases for commercial property located in Coachella which will be used to expand the company’s packaging and distribution capabilities in California.
Although Sunniva has reported several significant developments, the company has terminated several of its previously announced transactions and the market did not respond favorably to this. Over the coming months, we will keep an eye on how the California cannabis company continues to execute and will monitor how its numbers continue to improve.
CB2 Insights: An Under-appreciated Opportunity
Earlier this year, we started covering CB2 Insights (CBII.CN) (CBIIF) after learning about its business model and its plans for execution. We are impressed with the way that the business has advanced and believe that this is an opportunity to be watching. Last week, CB2 released first quarter financial results that showed impressive growth and we believe that the market under-appreciates this opportunity.
During the quarter, CB2 generated $2.9 million in revenue which represents a 16.4% increase over the previous quarter and based solely on organic growth within the company’s Canna Care Docs brand. If the company’s acquisition of MedEval and Relaxed Clarity clinic groups were included in the quarterly numbers, total revenue would have been approx. $500,000 higher and the quarter-over-growth would have been approx. 37%.
During the quarter, CB2 recorded strong organic revenue growth while substantially reducing the total amount of operating expenses and we are impressed with the results. This growth did not include revenue associated with the acquisition of MedEval and Relaxed Clarity and we expect to see much stronger growth reported during the current quarter. We remain committed to growing our clinical business, reducing our burn rate and working towards commercializing our RWE / data asset. We have made significant progress in each of these areas over the past quarter and are confident that our valuation should begin to reflect this.
CB2 currently operates the largest network of physician-staffed medical centers in the US specializing in qualifying and supporting patients who are treating their indications with medical cannabis. During the quarter the company added 4 new clinic locations under Canna Care Docs brand and we are favorable on the growth prospects associated with this opportunity on a go-forward basis.
One of the reasons we are excited about CB2 is related to the development and deployment of its proprietary cannabis-specific Electronic Health Record (EHR) technology platform to standardize the patient and clinical workflows within its clinics ensuring valid and structured anonymized and aggregate data collection protocols to support Real-World Data collection. Through a partnership with Premier Health Group (PHGI.CN) (PHGRF), the company is focused on enhancing this aspect of the business and we will monitor how this relationship adds value to the overall business.
Over the past several months, CB2 has had several meaningful conversations with a number of large-scale traditional Life Sciences stakeholders and are working towards the commercialization of its data assets to usher in a new level of understanding regarding cannabinoid therapy across the traditional healthcare sector. Over the coming months, we expect to see CB2 make additional acquisitions and are favorable on this growth strategy.
Through a series of inorganic and organic growth initiatives, CB2 has been nothing short of an execution story and we are bullish on this opportunity.
VapenMJ: A Burgeoning US Cannabis Company
Last month, Vapen MJ Ventures Corporation (VAPN.CN) released impressive first quarter financial results and this is an opportunity that we recently started to monitor. When compared to the prior quarter, total revenue increased by almost 50% and the company generated $6.5 million in revenue during the period.
Following the completion of an oversubscribed private placement, VapenMJ is well capitalized and well positioned to execute on its previously announced initiatives. In late May, the company raised more than $6 million and plans to use the capital for equipment, business development, and general working capital purposes One of the reasons we are excited about this opportunity is due to the potential catalysts for growth and find this to be significant.
Vapen is a leading medical cannabis concentrate brand in Arizona and is sold out of a majority of the 100+ dispensaries in the state. We have been bullish on the cannabis concentrate opportunity and find this to be an attractive vertical to be levered to. Over the next year, we expect the trend toward cannabis concentrates to become even more significant and believe that cannabis infused products or edibles will be the primary driver of this growth. By 2022, the cannabis concentrate market is expected to be generating approx. $8 billion in retail sales and this represents a massive opportunity for companies like Vapen.
When it comes to the US cannabis market, Vapen is currently working to expand out of Arizona through multi-state revenue and profit sharing agreements. The company is in negotiations with license holders in California, Nevada, Oklahoma, and Massachusetts, and we will monitor how the team is able to execute on this. When it comes to the international opportunity, Vapen is currently manufacturing cannabidiol (CBD) for its international brand in Jamaica and is planning to distribute these products in Canada and in certain South American countries. The company is also one of the few companies to be focused on the CBD opportunity in Japan and plans to distribute its products in this market.
Over the next year, we expect to see Vapen record strong growth and are favorable on the markets that it is targeting. Based on the success that the company has had in Arizona, we are bullish on the growth prospects associated with its expansion, especially when it comes to the international opportunity. By establishing a presence early on in these strategic international markets, the company will be well positioned to capitalize on the THC opportunity once it becomes legal in the markets that it is focused on.
Vapen has significant catalysts for growth and is led by a management team that is focused on execution. The company offers a premium product line and has done an incredible job when it comes to executing on the Arizona medical cannabis market. Going forward, we expect to see Vapen enter new markets and expect revenue numbers to ramp higher as a result of this. This is an exciting opportunity and one that we will be closely monitoring.
Aleafia Health: A Company with Significant Catalysts for Growth
Last month, Aleafia Health Inc. (ALEF.TO) (ALEAF) reported first quarter financial results that showed strong growth when compared to the prior period and this is an opportunity that we are excited about. Earlier this year, the Canadian cannabis producer acquired Emblem Inc., and we are bullish on the growth prospects of the combined company.
One of the reasons we are excited about Aleafia Health is due to the growth potential when it comes to its Canadian footprint. The Canadian cannabis producer is in the middle of a significant expansion of its three cultivations facilities and once completed, the company expects to reach an annual production capacity of 138,000 kg of dried flower across indoor, greenhouse, outdoor and strategic supply agreements.
With this amount of production, Aleafia Health will be one Canada’s largest cannabis producers and we find this to be significant. Once the company is operating at full capacity, it will be generating massive revenues and we believe that the market underappreciates this aspect of the story. When it comes to having distribution in Canada, Aleafia Health is well positioned and has distribution relationships across four provincial providers (Ontario, Saskatchewan, British Columbia and Alberta), three independent retailers (Fire & Flower, Starbuds, and OnePlant), and Shoppers Drug Mart. We are bullish on the distribution that is already in place and expect this to help support growth.
In regards to the acquisition of Emblem, we expect to see Aleafia Health recognize massive synergies and are favorable on the way this acquisition has improved Aleafia Health’s product portfolio. The transaction has provided the company with additional cannabis strains, oil formulations, capsules, and an oral dose-metered spray.
We expect Emblem’s product portfolio to continue to drive product innovation for the combined company and Aleafia Health will be able to leverage Emblem’s extraction and product innovation to sell high-margin medical cannabis products directly to its patient base. This represents a massive opportunity for Aleafia Health as well as its patient base, which can access Emblem’s differentiated high-margin derivative cannabis products. Over the next year, we expect this to be a major value driver and will monitor how the team executes on this.
The acquisition of Emblem has also had a significant impact on Aleafia Health’s leverage to the international cannabis opportunity. The company will benefit from Emblem’s previously announced joint venture with German pharmaceutical wholesaler Acnos Pharma GmbH. We are bullish on the German medical cannabis market and this relationship provides Aleafia Health with the ability to enter new markets. We will monitor how the team executes on this opportunity and believe that this is an important part of the growth story.
Earlier this month, Aleafia Health received a positive upgrade from Eight Capital which issued the company a Buy rating and a $3 price target. This was a significant development that will result in increased awareness for the company. Over the next year, we expect to see Aleafia Health significantly advance its fundamental story and are favorable on the growth prospects associated with its expansion. Aleafia Health is a Canadian cannabis producer with massive growth prospects and we have been closely monitoring this opportunity. During the last quarter, the shares have been under heavy pressure and have been trading lower with the market. When compared to its peers, Aleafia Health is trading at a massive discount and we expect this to change over the next year.
Chemesis: A Multi-Faceted Growth Story to be Watching
In April, Chemesis International Inc. (CSI.CN) (CADMF) released third quarter financial results and this is an opportunity that we continue to closely monitor. The company is in the middle of a massive expansion that is taking place on two continents and is capitalizing on the opportunity in the United States as well as in Colombia.
During the most recent quarter, Chemesis generated $3,762,139 in revenue, a 33% increase over the previous quarter, with gross profit of $1,113,903. The company has significant growth prospects and has been focused on strengthening its balance sheet in order to execute on these opportunities.
In late April, Chemesis International reported to have started the process to expand its operations into additional emerging cannabis markets in the US. Currently, the company has been executing flawlessly on the California cannabis market and has also been capitalizing on the opportunity in Puerto Rico.
Chemesis plans to concentrate on the Midwest region by establishing operations in Michigan, Wisconsin, Missouri, and Illinois. When compared to the East coast, the Midwest is less saturated and we are bullish on these markets. Currently, the company is in the application stage in each state and is also in the process of completing due diligence on assets (i.e. cultivation, extraction, and distribution) in these markets.
When looking at the markets that Chemesis plans on expanding into, we are most excited about the existing opportunity in Michigan. The state has passed both recreational and medical cannabis laws, and regulators are in the process of forming recreational cannabis laws. In early 2020, recreational cannabis sales are expected to commence and this should line up well with Chemesis’ timeframe for execution. In Michigan, Chemesis has applied for a hemp co-processing license, hemp cultivation license, a medical cannabis processing license, and will apply for a recreational cannabis processing license in the fourth quarter of 2019.
Over the next year, we expect to see the company report strong fundamental growth and expect the California assets to be a major value driver. We believe that the market underappreciated the potential revenue that can be generated as a result of its expansion and we find this to be significant. During the last month, Chemesis has been under heavy pressure and this is an opportunity that we continue to be excited about.