Aleafia Health Inc: Will This $0.49 Pot Stock Double?

Aleafia Health Inc (OTCMKTS:ALEAF): Will This Pot Stock Double?This Pot Stock Could See Major Upside Ahead

One of the things that many investors like about the marijuana industry is that there are plenty of fast-growing companies with very low stock prices.

In fact, you can find pot stocks with booming businesses trading at less than a dollar per share. Therefore, investors don’t need to put too much money up front in order to bet on the upcoming players in this nascent industry.

Aleafia Health Inc (OTCMKTS:ALEAF, TSE:ALEF) is one of the low-priced pot stocks. Although it’s listed on the Toronto Stock Exchange, it also trades over the counter in the U.S. under the ticker “ALEAF.” The last time I checked, ALEAF stock had a share price of just $0.49.

Despite its cheap-looking stock price, Aleafia Health actually runs a very solid business. The company has three cannabis cultivation and extraction facilities, two of which are licensed and operational.

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Added up, Aleafia has a licensed cultivation capacity of 32,600 kilograms (71,871 pounds) and a planned cultivation capacity of 129,500 kilograms (285,499 pounds). (Source: “Corporate Presentation November 2019,” Aleafia Health Inc, last accessed December 6, 2019.)

Furthermore, the company operates the largest national network of medical cannabis clinics and education centers in Canada. Since Aleafia Health’s inception, it has served more than 70,000 clinic patients.

To see why Aleafia stock deserves investor attention, all you need to do is take a look at the company’s latest earnings report.

In the third quarter of 2019, Aleafia Health generated CA$5.3 million of total revenue, marking a 34% increase from the CA$4.0 million earned in the second quarter. (Source: “Aleafia Health Reports First Profitable Third Quarter,” Aleafia Health Inc, November 12, 2019.)

Gross cannabis revenue, the company’s biggest top-line contributor, surged 64% sequentially to CA$4.16 million.

Growth was across the board. From the second quarter to the third quarter, Aleafia Health’s net medical cannabis revenue rose 43%, while its net recreational weed revenue grew 53%.

The company also boasts one of the lowest costs of production in the industry. In the third quarter, the all-in cash cost per gram to harvest at Aleafia’s outdoor grow facility was just CA$0.10, including capital costs amortized over a five-year period.

Meanwhile, the company also managed to achieve one of the highest selling prices in the business. During the reporting quarter, the company’s average net selling price per gram was CA$15.11 for medical pot, CA$6.40 for recreational pot, and CA$6.00 for bulk wholesale pot.

As you can see, medical pot seems to be the most lucrative. The good news is that, in the third quarter, Aleafia Health’s active registered medical patients grew 48% sequentially to 10,298.

And these aren’t even the most exciting numbers in the earnings report.

The most impressive number lies on the bottom line. For the reporting quarter, Aleafia Health Inc earned a net income of CA$1.9 million, representing a massive improvement because, in the prior quarter, the company incurred a net loss of CA$11.5 million.

As a matter of fact, this marked the first profitable quarter for the young company. In a new industry where many companies have been reporting losses quarter after quarter, Aleafia Health’s achievement is quite commendable.

And now, ALEAF stock just got a new catalyst.

A New Catalyst for Aleafia Stock

On December 2, Aleafia announced that it had received an order of 2,840 kilograms (6,261 pounds) of dried cannabis flower from a Canadian licensed producer. (Source: “Aleafia Health Completes $7.1M Cannabis Sale Agreement,” Aleafia Health Inc, December 2, 2019.)

Under the agreement, Aleafia Health would sell the pot at a price of CA$2.50 per gram. The company will send the marijuana in no more than three shipments, with final delivery expected to be completed before the end of January 2020.

Simple math shows that, from just this one order, Aleafia Health stands to generate CA$7.1 million of revenue. Considering that the company’s last reported quarterly revenue was CA$5.3 million, this single order will likely give a big boost to its financials in the next earnings report.

“This sale validates the strength of our outdoor cultivation,” said Geoffrey Benic, chief executive officer of Aleafia Health.

“Moving forward, we have a strong inventory of high quality outdoor input material to accelerate the growth of our priority international and Canadian medical sales channels.”  (Source: Ibid.)

Aleafia Health Inc (OTCMKTS:ALEAF) Stock Chart

Chart courtesy of StockCharts.com

Analyst Take

At the end of the day, keep in mind that marijuana is still a very new industry to stock market investors, and it’s yet to be seen which companies will become the winners in the long term.

Still, Aleafia Health Inc stands out due to the sheer growth in its business. Both the top and bottom lines have improved substantially, and a giant new order should make the numbers even better.

With a share price of well below a buck, Aleafia stock could be an opportunity for budget-conscious investors to get a piece of the action in this booming new industry.