This Marijuana Stock Looks Interesting
It’s easy playing Monday morning quarterback. Knowing what we know now, anyone can say that the best strategy for marijuana investors was to scoop up solid pot stocks when they were cheap at the beginning of 2019.
But the blunt reality is, the situation has changed. As many marijuana companies enjoyed their rally over the past several months, their stock prices have gotten quite expensive.
And as we’ve seen plenty of times in this day and age, it’s not uncommon for a stock to experience some pullback after shooting through the roof. If you are a risk-averse investor like me, you wouldn’t want to get into a pot stock only to see it entering a correction phase.
And that’s why today I want to talk to you about Aleafia Health Inc (OTCMKTS:ALEAF, TSE:ALEF).
Aleafia Health is a vertically integrated cannabis health and wellness company headquartered in Toronto, Ontario, Canada. With a market cap of around CA$465.0 million at the time of this writing, it’s not exactly an industry heavyweight.
However, for those who want to make a buck from marijuana stocks going forward, ALEAF stock deserves a serious look.
Let me explain.
Aleafia Health Inc: The Next Soaring Pot Stock?
The first reason to check out Aleafia Health stock is the sheer speed of its growth. Nowadays, we often hear the financial media discuss how fast pot companies are scaling up their operations. And while Aleafia Health doesn’t really make many headlines in the news, its growth rates are still up there with the best.
In 2018, Aleafia Health—along with its recently acquired subsidiary Emblem Corp—generated pro-forma revenue of CA$11.3 million. Compared to the combined companies’ 2017 revenue of CA$2.7 million, 2018’s top-line number represented a 327% increase year-over-year. (Source: “Aleafia Health Reports 2018 Fiscal Year-end Results, Provides Corporate Update,” Aleafia Health Inc, April 29, 2019.)
Right now, Aleafia Health operates through four main business segments: “Cannabis Cultivation & Products,” “Health & Wellness Clinics,” “Cannabis Education,” and “Consumer Experience.”
It has three cultivation and production facilities, two of which are licensed and operational. The company also has e-commerce, retail distribution, and provincial supply agreements. (Source: “Corporate Presentation May 2019,” Aleafia Health Inc, last accessed May 10, 2019.)
According to its latest earnings report, Aleafia Health is just getting started on its growth path.
Based on the anticipated expansion of Aleafia Health’s production facilities and its confirmed supply agreements, management expects the company to reach an annual production capacity of 138,000 kilograms (304,328 pounds) of dried flower and 50,000 kilograms (110,231 pounds) of extraction capacity in the near future. (Source: Ibid.)
The Best Could Be Yet to Come
There are several catalysts that could further boost this cannabis company’s performance.
Earlier this month, Aleafia Health announced that it was entering the German medical cannabis market through its joint venture with German pharmaceutical wholesaler Acnos Pharma GmbH. (Source: “Aleafia Health Enters German Medical Cannabis Market with Supply, Distribution Joint-Venture,” Aleafia Health Inc, May 6, 2019.)
Emblem—Aleafia’s subsidiary—will be the majority shareholder of the joint venture, with 60% ownership.
Germany legalized medical cannabis in 2017 and the market has seen some rapid growth. It is projected that, by 2025, the German medical cannabis market could deliver $5.0 billion in revenue for cannabis producers.
If Aleafia’s joint venture with Acnos Pharma can crack open just a small percentage of that market, it could bring the company millions of dollars in additional sales.
Also recently, Aleafia Health announced that it had completed the largest recreational cannabis order in its history.
The order, which is expected to generate CA$700,000 in cannabis sales, contains Aleafia’s branded “Symbl” oils, oral sprays, and dried flower products. The order is being delivered to a Canadian provincial government for distribution to retail and online customers. (Source: “Aleafia Health Welcomes Changes to Cannabis Licensing, Completes Largest Ever Product Sale,” Aleafia Health Inc, May 9, 2019.)
Aleafia Health CEO Geoffrey Benic said:
We are extremely pleased to report the largest ever cannabis sale in our Company’s history. Furthermore, with our Niagara Greenhouse and Outdoor Grow expansion in a plant-ready state, the assets are now in place to scale our cannabis health and wellness vision exponentially and build on today’s results.
Aleafia Health Stock Chart
Chart courtesy of StockCharts.com
As I mentioned earlier, cannabis stocks had a solid bull run in the first part of 2019. Year-to-date, the North American Marijuana Index climbed more than 30%, with some individual tickers surging more than double that.
In that regard, Aleafia Health Inc seems to be an overlooked name. While ALEAF stock did make a solid 21% gain year-to-date, the move wasn’t exactly a big one, considering how much its business had grown. We are talking about a company that quadrupled its pro-forma revenue last year.
Moreover, even after that surge, Aleafia Health stock still trades at just $1.27 over the counter in the U.S., which makes it look dirt cheap in terms of nominal value.
Ultimately, the market is still hungry for solid marijuana stocks. If Aleafia Health can continue delivering impressive growth numbers, it might be able to justify a much, much higher stock price very soon.