Meet the new Marijuana stock that is Trouncing Aurora Cannabis and Canopy Growth – The Motley Fool

Major Canadian marijuana stocks have taken a blow. Aurora Cannabis (NYSE: ACB) took a terrible start in its first week's trading on the New York Stock Exchange. Canopy Growth (NYSE: CGC) lost over 25% of its marketplace over the past week.

But there is a new marijuana stock that has flooded the storm quite well. In fact, its performance is trouncing Aurora, Canopy, and almost all other marijuana layers so far this year.

What new marijuana layer is it? Origin House (NASDAQOTH: ORHOF) . The stock began trading on the Canadian Stock Exchange (CSE) and over the counter in the US on October 22. But the catch is that Origin House is not brand new.

  Hands holding $ 1[ads1]00 bills with a marijuana leaf on top

Image source: Getty Images.

A New Identity

Until last week, Origin House was known as CannaRoyalty. What was the name change behind? The company wanted a new corporate identity that reflected its goal of becoming the "foremost global house for cannabis brands".

CannaRoyalty represented the company's roots. Its original business model was centered on cannabis royalty streaming, where the company provided funding for marijuana companies in exchange for a percentage of crops or ownership. But the company's strategy changed along the way.

Origin House is now focusing primarily on the distribution of cannabis products in California. The state has the largest legal marijuana market in the world. And Origin House ranks as No. 1 distributor in the California marijuana market.

The company currently has over 50 brand partners. It distributes more than 130 branded cannabis products to about 70% of retail stores in California. Origin House owns and markets several of its own brands.

But while Origin House is a major player in the great California market, it has not overlooked the opportunity in Canada. In September, the company announced that it was acquiring 180 Smoke, a leading vapor dealer with 26 stores and a strong online presence.

Good things on the horizon

With a new name, new logo and new stock ticker, Origin House expects that there will be many good things on the horizon. Managing Director Marc Lustig said that the first half of 2018 was a bit difficult in California due to an uneven launch of the state's recreational marijuana market. Now, however, Lustig understands that the situation is "quite amazing."

He expressed confidence that Origin House will be profitable in 2019. Technically, the company reported a profit in the second quarter. The positive bottom line is, however, derived from gains from the sale of assets. But Origin House is now looking forward to being in a solid way for sustainable profitability.

At least one analyst is projecting that Origin House will generate nearly 200 million Canadian dollars next year and 425 million dollars in 2020 – around US $ 325 million. Origin House does not provide revenue guidance at this time, but analysts estimate should be achieved.

Lustig stated that the company today produces around 70% of sales from distribution and 30% from private brands. The goal is to change the income mix near 50-50 by the beginning of 2019. Origin House plans to do this by launching a new brand every month.

This is part of Origin House's three-phase long-term strategy. The company intends to continue to build the foundation as the leading cannabis product distributor in California. Phase two is to use the data it collects from the distribution business to "internalize and accelerate" – bring more winning brands internally and market its brands in the California market.

Phase Three of the Origin House Strategy could provide an even greater return over time. The company plans to replicate its success in California in other high-growth markets. 180 The Smoke Acquisition represents an example of this effort. Lustig has suggested that Origin House could also expand to neighbor Nevada in the future. However, he has been determined that the company will be disciplined in how it grows instead of moving into new markets without laying the foundation effectively to do it.

Better than the big boys?

As mentioned earlier, Origin House is striking stock performance for most other marijuana stocks, including two of the largest: Canopy and Aurora. But is Origin House a better long-term share to buy than the "big boys" in the industry? I think it is.

The investment company Beacon Securities believes that distributors and dealers can be "royal builders" of cannabis brands. I agree with that view, especially in the US market. Origin House is well positioned to crown some of its own brands in addition to those of its brand partners.

Canopy Growth, Aurora Cannabis and their peers have their hands bound for operations in the United States. But Origin House does not & # 39; It is important to remember that the US accounts for 85% of global marijuana sales. Even with Canada's market for recreational marijuana now opened and medical cannabis markets that hit other countries, the United States will still generate nearly three-quarters of legal marijuana sales in 2022.

Then, it's appreciation. Even after the steep decline recently, Canopy's market coverage is close to $ 8 billion, while Aurora's market capitalization is almost $ 7 billion. Origin House's market value is closer to $ 300 million. With potential sales in the 250 million dollar ballpark in 2020, the equity valuation based on realistic growth potential is quite attractive in the short term. I can not say the same about the famous marijuana shares.

In August, I wrote that CannaRoyalty was the best under-radar marijuana stock I've seen so far. It is no longer true. Well, it's Origin House.

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