Summary

• The cannabis industry has sold off significantly over the past 12-18 months, leaving some stocks significantly undervalued on a book/price metric.
• Cannabis stocks are starting to push upwards again as some companies near profitability and certain metrics will provide information for investors.
• 20 stocks within the cannabis industry are below book value and may begin to turn a profit, creating an opportunity for significant stock gains.

Last week, I put together a long listing of stocks within the cannabis sector. This week, I have scrubbed up the list and expanded it. There are now 73 stocks; this, after taking out another 25, or so. Next week, I will add even more stocks to this list and use another metric to compare the individual stocks to each other.

There were two main variables factored into the "Scrubbing." First, I took out stocks that did not produce/sell cannabis. If you look down this list and see any stocks missing, ask yourself one question: Do they produce or sell cannabis? If the answer is no, then it would not be on this list.

The other major factor in this list is that I needed to readily find information on the company. There were some companies that I thought would have gone into this list, but I could not find enough information to add the company to the list. They got cut.

These stocks are mathematically compared with Book Value Ratio being the metric. According to Investopedia, this is what Book Value Per Share is:

Book value of equity per share (BVPS) is the ratio of equity available to common shareholders divided by the number of outstanding shares. This figure represents the minimum value of a company's equity and measures the book value of a firm on a per-share basis.

So, for the ratio, I merely take the book value per share and divide by the share price. This gives the Book Value Per Share Ratio. If you are interested in investing from a value perspective, you would likely want to find a stock that is above 1.000 on this ratio scale. The reason is simple: From a price perspective, if the share price is above the book value, then the stock is considered undervalued, and vice versa. The bigger the number above 1.000, the more the stock is undervalued. The smaller the number, the more the stock is considered overvalued.

But, before anyone gets all up in arms about this form of valuation, there are of course a number of ways to value a company. Book value is one of them, and this is what I am doing with this week's cannabis stock roundup.

When you do look at these numbers, make sure to get a grip on what is being said here. The 20 stocks that are "undervalued" based upon their valuation from a book to price ratio.

For instance, the most undervalued stock is TILT Holdings (OTCQB:TLLTF), a vape manufacturer. Their primary focus is manufacturing their own vape products and cartridges. They make these products for other companies and they are a market leader in this segment. However, their stock is so dramatically undervalued from a book/price ratio, I can't help but wonder if this puts a take-over target on their backs. Management will have to work diligently at increasing value with revenues in order for the stock to become appreciated.

There are others in that I think are in the same situation and looking at this list puts this into perspective as to how underappreciated the cannabis industry is right now since the sell-off throughout the past year. I see a lot of these companies that are undervalued as pure-play opportunities. But, not all. I also look at the rate of growth of revenues and margins at the same time. I don't look at this one metric as a be-all indicator if I should invest in a particular company or not.

There is one more thing to keep in mind. The cannabis industry saw significant selling throughout the past year and the industry is near its all-time bottom. This could present an opportunity for an investor looking to take advantage of oversold stocks based upon intrinsic value.

The Week In Review

I mentioned last week that I was not fully in love with the MJ Alternative Harvest ETF (MJ) that gets used frequently with cannabis companies' comparisons. Granted, it is better than nothing. But, it seriously leaves me wanting. Someone shouted out to me in that posting that there was another ETF that may be slightly better, that being the Global X Funds - Cannabis ETF (POTX). My take: it has its pluses and minuses and is slightly better than the aforementioned MJ ETF.

As I mentioned previously, I am trying to put together a portfolio of just pure-play, hands-on, cannabis companies. I am going to figure out a way to do that and include these stocks into that portfolio (and, any more I encounter) and on a weekly, monthly basis show the total trend of the portfolio. That will give readers, and myself, a good idea of what is going on in the industry.

In the meantime, here is a look at the charts on both POTX and MJ:

There is an unmistakable jump upwards in the chart from the election. There are a lot who believe that a Biden victory is good for the legalization of cannabis. I am not one of those people. Why? Simple. Mitch McConnell and the Senate. In order to legalize cannabis, you need all three things: The House of Representatives, the Senate, and the President of the United States. The House has already made itself clear that they want to pass legislation legalizing cannabis on a federal level. I feel pretty certain that the Senate is going to be a huge roadblock in this process.

Of course, Georgia, all of a sudden, is in serious play now with their run-off election.

The recent peaks in the cannabis sector seem to have been capped. In order for these stocks in this list to go higher, the Senate needs to find a way to pass a bill. I have no idea how that happens as it is right now.

Still, there are a few companies that I have found that are on the list that are nearing profitability and are likely to have forward earnings that will push the respective stocks upward.

And the Winner Is

A lot of cannabis stocks have taken a beating this year as they sold off significantly throughout 2020. In some regards, I see this as a significant opportunity, and book value to share price is one way of measuring that.

Below is the listing of stocks that would be considered "undervalued" because their book value is below that of their stock price. Some of these stocks are merely slightly undervalued. Others are significantly undervalued, such as TILT Holdings. There are 20 stocks that are =>1.000. The rest are below that number. I have taken all of the stocks and ranked them, descending, in value.

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