Marijuana Penny Stocks Reporting Strong Revenue Growth From First Full Quarter of Legal Cannabis Sales
In the lead-up to the October 2018 legalization of recreational marijuana in Canada, cannabis stocks were on a tear. So much so, it was difficult to find a marijuana stock trading at seemingly fair valuations. None of the weed companies had even started to generate revenue from recreational marijuana sales, but investors were optimistic.
We’re now into earnings season, and pot companies have been reporting their first round of quarterly results that include sales from recreational marijuana. It’s time for cannabis players to justify their lofty valuations with equally frothy revenue growth.
While the biggest players are garnering all of the attention, there are a number of marijuana penny stocks reporting impressive numbers.
3 Marijuana Penny Stocks
Here are three notable cannabis stocks that investors should pay attention to. Note that, because of inflation, a penny stock is defined as any equity trading under $10.00.
|Organigram Holdings Inc||OTCMKTS:OGRMF, CVE:OGI|
|48North Cannabis Corp||OTCMKTS:NCNNF, CVE:NRTH|
OrganiGram Holdings Inc
OrganiGram Holdings Inc (OTCMKTS:OGRMF, CVE:OGI), through its wholly owned subsidiary OrganiGram Inc, is a leading licensed producer of medical and recreational cannabis products in Canada. (Source: “Investor Presentation,” OrganiGram Holdings Inc, last accessed February 28, 2019.)
Since beginning operations at its main facility in Moncton, New Brunswick, Canada, the company has continued to expand its main facility to create additional production capacity. It has also acquired land and buildings adjacent to the main campus, that, when fully developed, will bring its production space up to roughly 533,000 square feet.
Keep in mind that, within the cultivation rooms, OrganiGram Holdings Inc grows cannabis on three levels, which means its capacity is greater than cultivation facilities with similar square footage.
OrganiGram recently completed Phase 2 and Phase 3 expansions at its Moncton property, bringing the total available grow rooms to 52. When fully utilized, these grow rooms will have an annual targeted production capacity of 36,000 kg (79,366 pounds) of dried flower.
When Phase 4 construction is completed (expected to be around October), the company’s targeted indoor production capacity will be 113,000 kg (249,122 pounds) per year.
OrganiGram has distribution agreements in place for all 10 Canadian provinces. It is one of only three licensed producers, along with Canopy Growth Corp (NYSE:CGC) and Aphria Inc (NYSE:APHA), to have distribution agreements with every province.
|OrganiGram Stock Information|
|Market Cap||$854.1 Million|
|Shares Outstanding||124.7 Million|
|50-Day Moving Average||$5.34|
|200-Day Moving Average||$4.74|
(Source: “OrganiGram Holdings Inc. (OGRMF) ,” Yahoo! Finance, last accessed February 28, 2019.)
OrganiGram’s share price was trending significantly higher in 2018 until it became a victim of the market-wide sell-off in October. The broad-based meltdown in December didn’t help, either.
Since the start of 2019, though, OrganiGram’s share price has had tremendous momentum, up 81% year-to-date.
Considering that recreational marijuana only became legal in Canada in October 2018, it’s fair to say that OrganiGram Holdings Inc is just getting started.
OrganiGram’s share price hit an important milestone at the start of 2019, when its 50-day moving average crossed over its 200-day moving average.
This bullish indicator, referred to as a golden cross, usually portends additional moves to the upside. The company’s share price has definitely been trending higher since then, and it’s only a matter of time until OGRMF can no longer be referred to as a penny stock.
Chart courtesy of StockCharts.com
Q1 Revenue Soars More Than 400%
On January 28, OrganiGram Holdings Inc announced its financial results for the first quarter ended November 30, 2018.
Net sales for the first quarter soared 419% year-over-year and 287% sequentially, to CA$12.4 million. Of that total, CA$9.2 million (74%) came from recreational marijuana sales, while the remainder came from medical marijuana sales. (Source: “OrganiGram Reports Record Net Revenue of $12.4 Million Up 287% Sequentially Quarter-over-Quarter; Adjusted Gross Margin of 71%,” OrganiGram Holdings Inc, January 28, 2019.)
Since OrganiGram’s first quarter ended on November 30, it means that OrganiGram’s strong revenue growth came from just one month of legal recreational marijuana sales in Canada.
First-quarter net income came in at an impressive CA$29.5 million, or almost CA$0.20 per share. In the first quarter of 2018, OrganiGram reported a loss of CA$1.2 million, or CA$0.01 per share. In the fourth quarter of 2018, net income was CA$18.0 million, or $0.15 per share.
OrganiGram Holdings Inc also reported free cash flow for the first time, of CA$2.9 million.
“The first quarter of 2019 is just the start of what we expect to be a year of tremendous growth,” said CEO Greg Engel. “We’ve always believed the Moncton campus would be a competitive advantage for us being able to produce high-quality indoor-grown product at a low cash cost of cultivation. Our first quarter results confirmed that as we reported an adjusted gross margin of 71%.”
For fiscal-year 2019, the company expects the majority of its revenue to come from recreational cannabis. The second quarter of 2019 will be the first full quarter of OrganiGram’s legal recreational marijuana sales. Right now, the company expects net revenue for the quarter to be at least twice that of the first quarter.
Gatineau, Quebec-based HEXO Corp (NYSEAMERICAN:HEXO) is a cannabis company that is known for being one of Canada’s lowest-cost producers. HEXO Corp currently has more than 310,000 sq. ft of production capacity, with another 1,000,000 square feet under construction. (Source: “HexoCorp 2019 Q1 Investor Deck EN,” HEXO Corp., last accessed February 28, 2019.)
Once completed, HEXO’s annual production capacity will balloon to an estimated 108,000 kg (238,100 pounds) of dried cannabis. Outside of Canada, HEXO is establishing a processing, production, and distribution center, giving it an eventual foothold in the eurozone.
|HEXO Stock Information|
|Market Cap||$1.2 Billion|
|Shares Outstanding||193.6 Million|
|50-Day Moving Average||$5.60|
|200-Day Moving Average||$5.66|
(Source: “HEXO Corp. (HEXO),” Yahoo! Finance, last accessed February 28, 2019.)
Like virtually the entire cannabis market, HEXO stock’s price was bullish over the first nine months of 2018. But then it fell in October and again in December.
While many analysts said the sell-off was because cannabis stocks were either overvalued or because people were running scared, this simply wasn’t true; it was a market-wide sell-off and everyone got hammered.
Thanks to optimism about the cannabis market, HEXO’s share price has had tremendous momentum over the first two months of 2019, up 67.5%.
Like OrganiGram, its 50-day moving average also recently crossed over its 200-day moving average, suggesting additional moves to the upside. Correlation is not causation, but it’s certainly something to keep an eye on in the coming weeks.
Chart courtesy of StockCharts.com
First-Quarter Revenue up 505%
In mid-December 2018, HEXO announced that its first-quarter revenue (for the period ended October 31) increased 505% year-over-year to $6.7 million. Of that number, a whopping $5.2 million came from marijuana sales.
Again, keep in mind that recreational marijuana only became legal on October 17, meaning that the revenue came from just two weeks of sales. (Source: “HEXO Corp reports $6.7 million in gross revenue for the first quarter of new fiscal year,” HEXO Corp, December 13, 2018.)
HEXO reported a first-quarter loss of $12.8 million, or $0.07 per share, compared to a loss of $1.9 million, or $0.03 per share, in the same prior-year period.
“HEXO hit tremendous milestones in the weeks following the legalization of adult-use cannabis,” said HEXO’s CEO and co-founder, Sebastien St-Louis. “HEXO’s first quarter financials highlight the remarkable pace of its adult-use cannabis sales and puts HEXO on-track to generate significant revenue this year.” (Source: Ibid.)
48North Cannabis Corp
Little-known 48North Cannabis Corp (OTCMKTS:NCNNF, CVE:NRTH) has been throwing up some impressive numbers. The Toronto-based cannabis company is focused on the health and wellness market, as well as on creating new brands for next-generation cannabis products. (Source: “Investor Presentation – February 2019,” 48North Cannabis Corp, last accessed February 28, 2019.)
To that end, the company is developing formulations and manufacturing capacity for its own proprietary products. It is also positioning itself to contract manufacturer-similar products for third parties.
48North Cannabis Corp currently operates two indoor licensed cannabis production sites in the province of Ontario, with over 86,000 square feet of production capacity. Its 40,000-square-foot indoor facility in Kirkland Lake, Ontario has an expected production capacity of 2,500 kg (5,511 pounds) of dried cannabis for 2019.
The company also has a 46,000-square-foot state-of-the-art indoor cultivation facility in Brantford, Ontario. The estimated 2019 production capacity in Brantford is also 5,511 pounds of dried cannabis.
48North also owns a large-scale, low-cost 100-acre organic farm, where it plans to produce organic, sun-grown organic cannabis. 48North is the first licensed producer to have submitted an application to Health Canada for an outdoor cannabis cultivation license.
In 2019, in addition to the 5,000 kg (11,023 pounds) of indoor production, 48North Cannabis Corp expects to cultivate 40,000 kg (88,184 pounds) of dried cannabis from its farm —and at the lowest cost per gram in the country to boot.
48North’s growing portfolio of brands include topicals, cosmetics, vape pens, edibles, and beverages. Some of its brands include “Latitude,” a women’s cannabis platform, and “Mother & Clone,” a rapid-acting sublingual cannabis nanospray.
|48North Stock Information|
|Market Cap||$97.4 Million|
|Shares Outstanding||81.1 Million|
|50-Day Moving Average||$0.55|
|200-Day Moving Average||$0.49|
(Source: “48North Cannabis Corp. (NCNNF),” Yahoo! Finance, last accessed February 28, 2019.)
48North Cannabis Corp only began trading on the stock market in June 2018, and its share price is still trying to find its footing. Since the market-wide sell-off in the fourth quarter, 48North has been making strong gains and is up 69.3% year-to-date.
Chart courtesy of StockCharts.com
First-Quarter Revenue Up 88%
On February 25, 48North announced its financial results for the second quarter of fiscal-year 2019, ended December 31, 2018.
Second-quarter revenue was CA$2.4 million, an 88% increase over first-quarter revenue of CA$1.3 million. (Source: “48North Cannabis Corp. Announces Sustained Revenue Growth For Fiscal Q2 2019,” Cision, February 25, 2019.)
The company reported a net loss of CA$872,628, an improvement from the first-quarter loss of CA$1.0 million.
It ended the quarter with CA$12.0 million cash on hand, with liabilities totaling $6.3 million.
“48North successfully achieved all of the milestones it targeted in Q2. These included: sustained revenue growth; closing both the Good & Green acquisition and the $10,000,000 private placement,” said Alison Gordon, co-CEO of 48North.
During the quarter, the company acquired Good & Green, a second licensed producer, with production anticipated to make 48North one of the biggest and lowest–cost producers of cannabis oil and dried cannabis.
48North also closed a CA$3,000,000 non-brokered private placement from Canopy Growth Corp., providing it with capital and liquidity to support 48North’s continued expansion, including the development of its 100-acre farm and its large-scale extraction capability.
Subsequent to the end of the second quarter, 48North Cannabis Corp repaid CA$2,300,000 in mortgage debt for the Good & Green facility and finalized a CA$7,045,000 non-brokered private placement from a top private investment fund, bringing in CA$10.0 million in new equity.
48North also completed the operational build-out and license application for its 100-acre outdoor cannabis farm.
On February 25, the company said it signed Canada’s first letter of intent for outdoor grown cannabis with the Société québécoise du cannabis (SQDC), Quebec’s sole legal retailer of recreational cannabis. (Source: “48North Signs Canada’s First-Ever Letter of Intent for Outdoor Cannabis,” 48North Cannabis Corp., February 25, 2019.)
Under this agreement, 48North will supply 1,200 kilograms (2,910 pounds) of cannabis to the SQDC from its outdoor farm and 120 kilograms (264 pounds) of indoor-grown cannabis from its facilities in Brantford and Kirkland Lake. The 2,910 pounds of cannabis will be delivered in the fourth quarter of 2019.
There are a lot of big cannabis players out there hogging the limelight with their strong revenue growth. At the same time, there are also some great small-cap marijuana companies reporting even more impressive numbers and strong outlooks.
Investors looking for cannabis players with great long-term growth potential and more affordable entry points might want to consider marijuana penny stocks like OrganiGram Holdings Inc, HEXO Corp, and 48North Cannabis Corp.