Canadian Penny Pot Stocks for 2019
After the market-wide meltdown in October and the December disaster on Wall Street, marijuana stocks, big and small, are back in the spotlight.
So far in 2019, marijuana stocks have been some of the biggest winners, with many erasing their 2018 losses. Of those marijuana plays, a number of Canadian penny pot stocks look the most interesting when it comes to undervalued weed stocks in 2019.
Pot stocks were all that Wall Street was talking about in the run-up to the October 17, 2018 legalization of recreational marijuana in Canada. It was hard to find a marijuana stock that wasn’t doing well.
All that changed in the middle of October, when the broader markets experienced a meltdown. That included marijuana stocks. Many analysts erroneously pointed to the sell-off in pot stocks as evidence the so-called marijuana bubble had burst.
Why would pot investors run for the exits the week that marijuana became legal in Canada? They didn’t. Every sector was getting hammered.
There was no logical reason for early-bird investors—who were investing in one of the most lucrative industries, which is still in its infancy—to sell en masse.
I enter as evidence:
By 2025, the recreational marijuana industry is expected to be worth $146.4 billion and grow at a compound annual growth rate (CAGR) of 34.6%. Over the next 12 years, the legal marijuana industry is projected to grow at a CAGR of 19.75%. (Source: “Legal Marijuana Market Worth $146.4 Billion by 2025 | CAGR: 34.6%,” Grand View Research, Inc., last accessed January 21, 2019.)
Investors generally don’t walk away from an industry that is expected to churn out those numbers.
Yes, many pundits on Wall Street were saying that marijuana stocks were overvalued, with some of them climbing 100%, 200%, or even more than 300%.
But it’s tough to gauge that sentiment when you consider that not a single marijuana company had reported earnings that included revenue from legalized weed when the markets turned.
Marijuana Stocks Bullish in 2019
Again, marijuana stocks took a beating along with the rest of the market in 2018. But that has come to pass. 2019 is less than a month old, but marijuana stocks have been bullish.
The Horizons Marijuana Life Sciences Index ETF (OTCMKTS:HMLSF, TSE:HMMJ) is up 26.6% year-to-date while the S&P 500 is up just 5.8%. And both have a long way to go to reach their pre-October 2018 sell-off levels.
The fact is, the outlook for marijuana stocks in 2019 remains robust, especially for overlooked Canadian penny pot stocks. There are many excellent Canada-based penny pot stocks with strong fundamentals still trading under the radar.
That doesn’t mean all Canadian penny pot stocks; most are not worth your time, but a handful are.
Thanks to inflation, a penny stock is defined as any equity trading for under $10.00. That said, most of the three weed stocks profiled below trade much lower than that threshold and would be considered cheap compared to their much larger peers.
Why focus on Canadian penny pot stocks? Medicinal marijuana has been legal in Canada since 2001, giving Canadian weed companies more than enough time to develop their strains, infrastructure, supply agreements, and partnerships.
Recreational marijuana may be legal in 10 U.S. states and the District of Columbia, but it’s still illegal at the federal level. This has led to a confusing patchwork of laws and regulations, which has put the U.S. far behind Canada when it comes to pioneering the marijuana market.
That will change once recreational marijuana becomes legal in the U.S. Until then, the vast majority of marijuana stocks are listed and based in Canada.
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Canadian Penny Pot Stocks List 2019
Here are three Canadian penny pot stocks that should be on your radar in 2019.
|Hexo Corp||OTCMKTS:HYYDF, TSE:HEXO|
|Neptune Wellness Solutions Inc||NASDAQ:NEPT|
|Origin House||OTCMKTS:ORHOF, CNSX:OH|
Hexo Corp Stock Forecast for 2019
The sell-off that started in October 2018 put a number of Canadian penny pot stocks in an even better trading range. Hexo Corp (OTCMKTS:HYYDF, TSE:HEXO) is just one of those penny stocks. Before the October sell-off, Hexo was trading at around $9.30 per share. On December 24, it hit a low of $4.11; a drop of 55.8%.
Since then, Hexo’s share price has been on the move and was trading at $5.21 at the time of writing.
Hexo is an adult-use cannabis brand based in Gatineau, Quebec. Known for being one of the country’s lowest-cost producers, Hexo has more than 310,000 square feet of production capacity. It actually just completed a massive 1,000,000-square-foot licensed facility on time and on budget.
The expansion is an important step for Hexo as it continues to ramp up annual production capacity to an estimated 108,000 kilograms (238,100 pounds) of dried cannabis. (Source: “About Us,” Hexo Corp, last accessed January 21, 2019.)
Hexo also has a foothold in Greece, where it will be establishing a eurozone processing, production, and distribution center.
Of significance to American investors, Hexo announced recently that its common shares are approved for listing on the New York Stock Exchange (NYSE) and will commence trading at the market open on Wednesday, January 23, 2019. (Source: “HEXO to begin trading on the NYSE American,” GlobeNewswire, Inc., January 17, 2019.)
Hexo’s shares will trade on the NYSE under the ticker symbol “HEXO.” It will also cease trading on the over-the-counter markets (OTCMKTS) under the symbol “HYYDF.”
Chart courtesy of StockCharts.com
On December 13, 2018, Hexo reported its financial results for the first quarter of fiscal-year 2019, ended October 31, 2018.
First-quarter revenue came in at $6.7 million, which includes $5.2 million in sales from adult-use marijuana in the first two weeks following legalization in Canada. This represents a 505% increase over the $1.1 million recorded in the same prior-year period. (Source: “HEXO Corp reports $6.7 million in gross revenue for the first quarter of new fiscal year,” Hexo Corp, December 13, 2018.)
During the quarter, Hexo produced over 3,550 kilograms of dried cannabis. Approximately 1,110,000 total gram equivalents were sold in the quarter compared to 539,000 in all of fiscal 2018.
Thanks to the completion of its 1,000,000-square-foot facility, it is well on its way to achieving full production capacity of 108,000 kilograms of annual dried flower production.
“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.)
Why HEXO Stock Could Soar in 2019
HEXO stock’s share price has been bullish over the last few weeks and the rest of 2019 looks encouraging as well. The company recently completed its one-million-square-foot facility, putting total operations at 1.3 million square feet.
First-quarter revenue was up an eye-watering 505%, fuelled largely by sales from the first two weeks that recreational marijuana was legal in Canada. To meet the growing demand for cannabis, Hexo is on its way of achieving full annual production of 108,000 kilograms.
Now that HEXO will trade on the NYSE, it will get greater exposure to American investors and those who do not like buying stocks on the OTCMKTS.
HEXO stock is a penny stock, but it doesn’t look or act like one. 2019 will be an interesting year for Hexo. Who knows, it might not even be a penny stock come 2020.
Neptune Wellness Solutions Stock Forecast for 2019
Neptune Wellness Solutions Inc (NASDAQ:NEPT) is another one of the Canadian penny pot stocks that looks cheap. Like other marijuana equities, Neptune’s share price took a hit in October and bottomed on Christmas Eve, losing 41.1% of its value.
Neptune’s share price has been active since then, rising to $3.49 per share at the time of writing. To get to its pre-October sell-off range, Neptune’s share price needs to climb an additional 26%.
Neptune Wellness is a health and wellness products company that operates in five key areas: Legal Cannabis, Ingredients, Turnkey Solutions, Pet Supplements, and Consumer Brand.
On January 9, 2019, Neptune announced it received its license to process cannabis from Health Canada. The Health Canada license enables Neptune to handle dried cannabis, to manufacture and purify cannabis extracts and cannabis oil, and to sell its services to other license holders.
With production activities anticipated to commence shortly at Neptune’s 50,000-square-foot good manufacturing facility in Sherbrooke, Quebec, the company expects to be able to generate revenues from existing supply agreements and conclude additional agreements shortly.
The company is working its way through the cannabis licensing process with Health Canada and its facility in Sherbrooke will begin operations after receiving its producer’s license.
Phase II of Neptune’s capacity expansion is on time and expected to be completed by March 2019. This will significantly raise Neptune’s production capacity to 200,000 kilograms (441,000 pounds) of dried cannabis, from its current capacity of 30,000 kilograms (66,140 pounds).
Chart courtesy of StockCharts.com
Neptune Wellness Solutions’ Financials
On November 13, Neptune announced its financial results for the second quarter of fiscal-year 2019, ended September 30, 2018. Second-quarter revenue increased 18.33% year-over-year to $7.1 million. (Source: “Neptune Announces Second Quarter Results,” Neptune Wellness Solutions Inc, November 13, 2018.)
The company reported a second-quarter net loss of $3.1 million compared to net income of $20.0 million in the same prior-year period. The huge difference reflects the company’s investment in its cannabis business and a gain of $23.9 million realized from the sale of the krill oil business in the comparative quarter.
Year-to-date revenue was $12.2 million, a nine-percent increase over the $11.2 million recorded in the same prior-year period.
Cash and cash equivalents, including $2.4 million of short-term investments, were $20.5 million as at September 30, 2018.
Why Neptune Wellness Solutions Could Soar in 2019
There’s one good reason why Neptune’s share price should soar in 2019; it received its highly coveted license to process cannabis from Health Canada. Not only that, Neptune is on track to complete its Phase II capacity investment by March 2019.
These changes will position Neptune to be among Canada’s largest cannabis processors, with additional capacity expansion potential at its Sherbrook facility of up to 6,000 metric tons for medical cannabis products.
Origin House Stock Forecast 2019
Origin House (OTCMKTS:ORHOF, CNSX:OH)—the registered business name of CannaRoyalty Corp—was doing very well in 2018, shrugging off the October sell-off. In fact, it went on to hit a new 52-week high on November 7 of $11.00 per share for a year-to-date gain of 172.2%.
The Ottawa-based company wouldn’t make it out of December unscathed, though. On December 24, it hit an intra-day low of $5.03, a 54.2% drop from its November highs.
It’s since rebounded though, with Origin’s share price up roughly 18.6% year-to-date.
Origin House is a private equity firm that specializes in acquisitions in the U.S. and Canada. The company has a strong presence throughout Canada, but its foundation is in California, the world’s largest regulated cannabis market. The population of Canada is roughly 37.7 million while the population of California is 39.5 million.
In California, Origin House has delivered over 130 branded cannabis products to the majority of licensed dispensaries. The company operates out of five licensed facilities across California where it provides distribution, manufacturing, cultivation, and marketing services for its brand partners.
Chart courtesy of StockCharts.com
Origin House’s Financials
On November 28, 2018, Origin House announced its financial results for the third quarter of fiscal-year 2018. Third-quarter revenue was a record $6.6 million, a 790% increase over the $744,302 recorded in the same prior-year period and a sequential increase of 89%. (Source: “Origin House Announces Sequential Revenue Growth of 89% for the Third Quarter 2018,” Origin House, November 28, 2018.)
The company reported a third-quarter net loss of $7.5 million, or $0.12 per share versus a third-quarter 2017 net loss of $3.3 million, or $0.08 per share.
Origin House ended the third quarter with $75.3 million in cash, compared to $4.5 million at December 31, 2017, an increase of 1565%. Total assets of $220.2 million, compared to $46.1 million, an increase of 377%. Long-term debt of $28.2 million as compared to $2.3 million.
Origin House CEO Marc Lustig commented:
Last quarter, we stated that after a substantial period of building a foundation, Origin House was at the beginning of a multi-period, sustainable acceleration in revenue growth. Year-to-date, we generated record revenue, completed four transformational acquisitions and are well-capitalized to continue growing. We expect to continue delivering strong revenue growth throughout Q4, 2019 and beyond…
Why Origin House Could Soar in 2019
Origin House is a fundamentally strong company with an aggressive acquisition strategy, making it a leader in the largest and most dynamic cannabis market in the world. Management believes it is “just at the beginning of our growth curve.” (Source: Ibid.)
The company also believes its brand development strategy has become increasingly difficult to replicate, making it increasingly valuable for its shareholders.
Origin House reported record third-quarter revenue and, by its own admission, is at the beginning of its growth stage. It will be interesting to see if Origin House can continue to post these kinds of exceptional numbers throughout 2019.
The marijuana industry is crowded with a handful of names capturing all of the attention.
Still, there are a number of excellent Canadian penny pot stocks trading under the radar, companies whose share prices could surprise investors who are too busy to pay attention to weed penny stocks in 2019.