This Pot Stock Looks Interesting
Seeing all the pot stocks shooting through the roof, one cannot help but wonder whether they are too late to get on board the profit train. Sure, the industry’s growth theme remains intact, but not everyone is willing to put their money in a pot stock after it has soared.
For investors looking for a low-priced marijuana stock with big upside potential, here’s a name to consider: Auxly Cannabis Group Inc (OTCMKTS:CBWTF, CVE:XLY).
Headquartered in Toronto, Ontario, Canada, Auxly Cannabis Group is a cannabis company focusing on the medical, wellness, and recreational markets. Rather than just grow pot on its own, Auxly has a diversified supply chain.
Right now, the company has wholly owned subsidiaries producing cannabis, offtake and streaming agreements with other growers, and a joint-venture (JV) project for large-scale greenhouse cannabis cultivation.
Notably, the JV facility, which is currently under construction, will have 1.4 million square feet and is expected to produce 155,000 kilograms (341,717 pounds) of cannabis annually at full capacity. Auxly expects the facility to make its first product delivery in the first quarter of 2020. (Source: “Auxly Cannabis Group Investor Presentation April 2019,” Auxly Cannabis Group Inc, last accessed July 5, 2019.)
Moreover, the company has a wholly owned product development subsidiary, Dosecann Cannabis Solutions, which holds both a processing license and an analytical testing license.
At its 42,000-square-foot facility located in Charlottetown, Prince Edward Island, Dosecann will develop and manufacture higher-margin, value-added cannabis products for the medical and recreational markets.
And that’s not all. While Auxly Cannabis Group Inc is a Canadian company, it plans to expand its presence internationally through an 80%-owned subsidiary, Inverell S.A.
Located in Montevideo, Uruguay, Inverell is a licensed cannabis operator that currently has 187 hectares of hemp plants in the ground and is expected to produce more than 1,000 kilograms (2,205 pounds) of CBD isolate annually. By 2021, the facility’s annual CBD isolate production rate is projected to ramp up to 10,000 kilograms (22,046 pounds).
Big Opportunities Ahead?
According to Auxly Cannabis Group’s latest earnings report, the company completed its first sales of dried cannabis flower in the first quarter of 2019.
During the quarter, sales of dry cannabis products brought in CA$300,000 of revenue. Adding in research revenues from its wholly owned subsidiary KGK Science, Auxly’s total revenue for the quarter was CA$800,000. (Source: “Auxly Reports Q1 2019 Financial Results and Highlights Key Milestones,” GlobeNewswire, May 27, 2019.)
Of course, compared to the more well-known cannabis producers, these numbers don’t look that impressive. However, Auxly is well positioned to capitalize on the next big opportunity in the Canadian cannabis industry—the “second wave” of legalization.
You see, Canada legalized recreational marijuana on October 17, 2018. But that was just a start. The Canadian government is expected to legalize derivative products for recreational use—such as concentrates, edibles, and topicals—in October 2019.
And that “second wave” of legalization is what Auxly Cannabis Group is preparing for.
As a matter of fact, preparing for the launch of derivative cannabis products is one of the reasons why the company didn’t sell that much dried flower in the first quarter.
In its earnings press release, Auxly said clearly that, “Dry cannabis flower sales have been curtailed as a result of the company’s decision to use the dry flower to develop derivative cannabis products in anticipation of Phase two legalization.” (Source: Ibid.)
Mind you, edibles and other value-added derivative cannabis products tend to have higher margins than dried flower. As a result, the company has a chance to not only earn much higher sales when these products legally go on sale in the fourth quarter of 2019, but also improve its profitability.
Due to the size of its current business, Auxly Cannabis Group Inc is a relatively small stock on the market.
And as I mentioned earlier, this is a pot stock that didn’t really shoot through the roof. Over the past 12 months, CBWTF stock is actually down more than 29%.
Today, Auxly stock trades at just $0.59 apiece over the counter, making it one of the cheapest pot stocks in terms of nominal share price.
Auxly Cannabis Group Inc (OTCMKTS:CBWTF) Stock Chart
Chart courtesy of StockCharts.com
While investor sentiment hasn’t been that bullish toward Auxly stock lately, management is confident about the company’s future after the upcoming full legalization of cannabis products in Canada.
“We are well on track to have our initial range of derivative cannabis products completed and available for sale into the upcoming legal market later this year,” said Auxly’s Chairman and Chief Executive Officer Chuck Rifici earlier this year.
Rifici added, “With the combination of our cultivation supply, R&D, product development and manufacturing capabilities, and our relentless focus on science and innovation, we look forward to bringing the best cannabis products, brands and experiences to the medical, wellness and adult-use markets.” (Source: GlobeNewswire, op. cit.)
At the end of the day, keep in mind that penny stocks are usually not the safest bets.
But if Auxly Cannabis Group Inc manages to deliver on its pot derivatives plan in the fourth quarter of 2019 and beyond, the CBWTF stock price could go much, much higher.