Vireo Stock a Tiny Pot Play With High Aspirations
Optimism for the cannabis sector in the U.S. is picking up steam as more states get on board to legalize medical and recreational marijuana.
A compelling high-risk micro-cap play on medical and recreational pot in the U.S. that offers a strong risk/reward prospect is Vireo Health International Inc (CNSX:VREO, OTCMKTS:VREOF).
Vireo is in its early stages, but it’s displaying a strong ramp-up in its revenues that’s expected to continue.
The company does everything from research and development to cultivation, distribution, and retail sales. Vireo Health International Inc has a presence in Arizona, Maryland, Minnesota, New Mexico, and New York. And it’s expanding.
VREOF Stock’s Price Weakness Presents an Opportunity
A look at the following chart shows the amazing move by Vireo stock over the past year after declining to $0.20 during the March 2020 sell-off.
VREOF stock’s journey back up has been spectacular, with the stock easily recovering to its pre-COVID-19 levels, up 382% over the past year and up 55% this year.
Chart courtesy of StockCharts.com
Vireo stock has pulled back by 35% over the past three months to a level where I see an aggressive opportunity.
Vireo Health International Inc Ramping Up Its Revenues
While it’s early in the cycle for Vireo Health International Inc, the company has been driving its revenues up in its first two years of results.
Vireo’s revenues jumped 64.3% year-over-year to $49.2 million in 2020. (Source: “Vireo Health International, Inc. (VREOF),” Yahoo! Finance, last accessed May 10, 2021.)
Its revenues will likely accelerate as more cannabis stores open and third-party sales rise. For 2021, the company is expected to increase its revenues by 47.5% to $72.6 million.
As Vireo increases its revenues, it’s not surprising to see the company consistently report losses in terms of generally accepted accounting principles (GAAP) earnings per share (EPS).
|Fiscal Year||GAAP Diluted EPS||Growth|
(Source: “Vireo Health International Inc.” MarketWatch, last accessed May 10, 2021.)
The company has also been reporting negative earnings before interest, taxes, depreciation, and amortization (EBITDA).
What you want to see is narrower losses and a pathway toward profitability.
The consensus estimate calls for Vireo to narrow its adjusted loss to $0.06 per diluted share in 2021. The company could see profitability by 2022. (Source: Yahoo! Finance, op. cit.)
In the meantime, Vireo Health International Inc will need capital to expand its growing capacity and retail distribution.
At the end of 2020, the company’s working capital was strong. Vireo had cash of $25.5 million and debt of $23.2 million. (Source: Yahoo! Finance, op. cit.)
Vireo Health International Inc is just beginning to ramp up its revenues and expand its retail network. The big risk for the company will be competition and the ability to control its cost side.
Of course, the payoff could be massive for a small company like Vireo as the U.S. pot market grows.