3 shocking "Cheap" Marijuana Shares – The Motley Fool
This has been a somewhat branched year for the marijuana industry.
On the one hand, Canada became the first industrialized country in the world to legalize recreational crashes and several states in US legitimized cannabis in some capacity. In other words, the legal pot industry has legitimacy now and it will translate to some clear winners over time.
On the other hand, marijuana shares performed miserably in 2018, with Horizons Marijuana Life Sciences ETF a fund that currently holds about four dozen potatoes and loses more than a third of its value since the year began.
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Value or value?
Again, this decline can open the door for opportunistic investors (and strongholds) to dip their toes into the water. With marijuana shares that suffer from an otherwise miserable year, few in the future have price-to-earnings ratios that can reasonably be called "cheap". Of course, as we often learn as investors, there are sometimes valid reasons for a company to act "cheap" compared to its peers.
Here are three pure play marijuana stocks that seem to be shockingly cheap.
Supreme Cannabis Company: Forward P / E of 1[ads1]2.7
Admit it, no one guessed the well-known Toronto-based manufacturer, The Supreme Cannabis Company (NASDAQOTH: SPRWF) is currently The cheapest grower at a previous price-to-performance ratio of less than 13.
Supreme Cannabis Co. flying under the radar because it has not engaged in the acquisition of a task that many of its peers have. Instead, it has been chosen to focus on its 342,000 square meter 7ACRES plant. This growing page can generate as much as 50,000 kilos when operating at full capacity.
In a context, there is not much production, which means that it will be overlooked by most investors. But focusing on a single growing website, the company makes it possible to distinguish brand differentiation and centralize costs. By fishing to produce premium marijuana, Supreme Cannabis can be able to avoid commoditization concerns that have garment recreational-legal states in the United States
To be ready, Supreme Cannabis is no security investment. If Canadian weed supply follows the footsteps of selected US states and rises early in the next decade, the company's focus on dried cannabis can actually return to tense operating margins.
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Aphria's stock has completely unraveled the last week after a report was issued from short-term Quintessential Capital Management which claimed that Aphria grossly overpaid for three assets in Latin America and the Caribbean. Quintessential's report, co-author of forensic analysis company Hindenburg Research, claims that these assets were purchased from Canadian offshore companies for a fraction of the sales price of SOL Global Investments (formerly Scythian Biosciences). Furthermore, the report of the SOL Chairman and Aphria Advisor Andy DeFrancesco connects to all three assets.
Even though Aphria strongly disapproves of these allegations and stands behind its Latin American acquisitions, it is uneasy that this is the second time in less than nine months as a purchase has been forced. In March, Aphria concluded the acquisition of Nuuvera of $ 425 million, which opened the door to eight new markets for the company. However, CEO Vic Neufeld and members of his management did not reveal their bets in Nuuvera until one day before the agreement was terminated. Although it is not unhealthy for a management team to have a stake in a company that has been purchased, Wall Street and investors will want to know about it long before one day before closing.
The problem with Aphria is that it's going to struggle to regain investors' self-esteem. Certainly, it can achieve the third highest annual output of all manufacturers at 255,000 kilos of highest estimated output, but it is meaningless if investors do not trust that management should operate in the investor's interest. At the moment, Aphria is a marijuana actor worth avoiding, despite the perceived "cheapness".
Image Source: Getty Images.
HEXO: Forward P / E of 20
Perhaps the most exciting value of all is HEXO (NASDAQOTH: HYYDF) with a forward P / E in just 20.
HEXO brings two factors to the table that investors are bound to appreciate. Firstly, the potential is to be a top 10 manufacturer, with an estimated 108,000 kilo peak annual output. Currently, an expansion of 1 million square meters in Quebec is expected to be completed by the end of this year, HEXO appears to be in front of the game on the capacity expansion front.
Secondly, HEXO has a brand name partner in the back pocket. On August 1, HEXO formed a joint venture with Molson Coors Brewing Co. to develop cannabis-infused beverages. Interestingly, most alternative consumables (including beverages) are not legal in Canada right now. The expectation is that Parliament will discuss and approve new spending options next summer, even if no official timeline has been published. With Molson Coors next door, HEXO probably has a way to new markets and a partner who really understands how to market new products to consumers.
As a stand-alone company or a potential buyer, HEXO can be worth a closer look.
