Despite the economic shutdown in large parts of North America, all of the initial reads on the cannabis sector have surprisingly been positive. Due to the medical cannabis aspects of the sector, most retail stores have been deemed essential allowing for the stores to remain open.
Consumers from the U.S. and Canada have flooded retail stores and online websites to buy up cannabis products due to fears of and economic shutdown and potential store closures. Oddly though, the stocks haven’t generally rebounded despite positive sector trends as 2020 starts.
Areas from California and Washington saw sales jump approximately double during the period from March 13 to March 17. Average store revenues were up roughly 100% at more than 1,300 stores using cannabis e-commerce platform Jane Technologies. Several other metrics saw massive product demand during mid-March.
All of the news isn’t bullish as Massachusetts closed recreational cannabis stores, Nevada stores are seeing declining sales due to a lack of tourists and Canopy Growth closed 23 stores in Canada. In addition, sales are already seeing a return to normal levels as customers pull back from aggressive buying once realizing the stores will remain open even during lockdown.
Several cannabis companies have recently reported solid quarterly reports that should only benefit from increased sales during the coronavirus outbreak along with company specific catalysts in 2020.
We’ve delved into these three companies with solid earnings and positive outlooks for a strong March quarter and the full-year 2020. Furthermore, we’ve looked at the stocks through the lens of TipRanks' Stock Comparison tool to find out what makes them special. Let’s dive in.
The largest under the radar cannabis play remains Curaleaf Holdings. The company reported pro-forma Q4 revenues of over $131.7 million to lead the cannabis space.
The amount far tops the C$123.8 million generated by Canopy Growth while Curaleaf is EBITDA positive and produces far better bottom line results than the consistent C$90 million EBITDA losses of Canopy Growth.
The amazing part is the tepid reaction to results due to the indication that the recent Select acquisition was underperforming. The company only generated a minimal boost from the Q3 pro-forma revenues of $129.1 million with a suggestion that strong Curaleaf and Grassroots results were offset by Select only producing $5 million in monthly revenues. The brand was generating $35 million in quarterly revenues when the merger was announced and the competitive California space along with the vape health issues really hurt revenues.
The stock is only at $3.50 after hitting around $7.50 earlier this year and the company is positioned for a boost in sales from Illinois due to Grassroots and a rebound in Select sales from vapes and expanded distribution. In addition, Curaleaf is seeing a boost from the initial rush of sales due to stay-at-home order for the virus outbreak. The stock only has a $1.7 billion market valuation with sales still on pace to reach $1 billion this year providing a great entry point.
Analysts are striking a bullish tone on Curaleaf stock, as well. 6 Buys and 1 Hold assigned in the last three months add up to a Strong Buy analyst consensus. In addition, the $9.68 average price target puts the potential twelve-month gain at over 170%.
Green Thumb Industries (GTBIF)
Green Thumb Industries is a leading player in several states seeing ramping growth due to legalization of recreational cannabis in Illinois and medical cannabis in Pennsylvania. The company reported Q4 revenues of $75.8 million and guided to 20% revenue growth in Q1 as most stores offer medical cannabis are considered essential by states and remain open.
While Curaleaf didn’t guide for the quarter, Green Thumb appears more confident the virus outbreak isn’t going to impact sales, especially considering the quarter was nearly over when the company reported Q4 results. Green Thumb generated Q4 adjusted operating EBITDA of $14.4 million in the quarter as the company continues to maintain efficient operations.
Similar to other cannabis stocks, Green Thumb is down about 50% from highs just a few months ago. The stock had a 52-week high above $16 and now trades down around $5.5 despite these strong quarterly results.
With 215 million shares outstanding as of the start of 2020, Green Thumb has a market cap of $1.2 billion. The company appears set to generate 2020 revenues of $450 million and up to $680 million in 2021. The stock becomes more of a bargain as investors start viewing the 2021 revenues as legitimate with the strong recreational sales in Illinois and the potential growth in other states.
Encouragingly for investors, 6 out of 7 analysts have published a "buy" rating on the stock, according to TipRanks. Their $14.63 average price target translates into 158% upside potential from the current share price.
MediPharm Labs (MEDIF)
Another company still in expansion mode is MediPharm Labs. The Canadian cannabis extraction company was built for profitable growth and the company remains on path to expand internationally in 2020 while other Canadian companies reign in global ambitions.
For Q4, revenues were up over 200% from last Q4 to C$32.4 million, but revenues did decline from C$43.4 million in the prior quarter. Revenues and profits did take a hit as the Canadian market was oversupplied with wholesale bulk oil, but MediPharm Labs still generated gross profit of C$10.0 million and EBITDA of C$2.7 million.
The company completed a year where revenues reached C$129.3 million and adjusted EBITDA was an impressive C$24.7 million. MediPharm Labs is positioned for growth in 2020 as Cannabis 2.0 products rollout in Canada and the company expands internationally having just obtained a GMP certification by the Therapeutic Goods Administration in Australia.
The stock is down to near $1 despite these positive results. With a market cap of only $155 million, MediPharm Labs is cheap in comparison to expectations for revenue growing to nearly $120 million or C$170 million this year and up to $170 million in 2021. As more retail stores open in Canada and Cannabis 2.0 product sales expand, the cannabis extraction company will see revenues rebound making the stock a bargain down here near $1.
Indeed, the stock boasts a confident Strong Buy consensus from the Street. TipRanks shows that the average analyst price target stands at $4.37, which implies over 300% upside over the next 12 months.