This $0.78 Pot Stock Soared 30% in 1 Month, More to Come?

Auxly Cannabis Group Inc After a 30% Increase in 1-Month , is there More
iStock.com/Tinnakorn Jorruang

Time to Check Out This Low-Priced Pot Stock

“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.”

That’s what I told readers of Profit Confidential about Auxly Cannabis Group Inc (OTCMKTS:CBWTF, CVE:XLY) last month. In that piece, I explained why this low-priced pot stock could see material upside.

I hope you took advantage of that piece. When I wrote that story, Auxly Cannabis Group Inc was priced at $0.59 per share. Today, the company trades at $0.78 apiece, marking a gain of more than 30% in just one month.

The best part is, the opportunity might not be over just yet. For investors looking for pot stocks that have serious upside potential, CBWTF stock remains one of the top names to consider.

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Compared to the big pot companies trading on major U.S. stock exchanges, Auxly Cannabis Group is a relatively small player in the business. But the company does help investors get exposure to the different aspects of the booming cannabis industry: Auxly focuses on the medical, wellness, and recreational cannabis markets.

The company boasts a diversified supply chain. In particular, Auxly has wholly owned pot growing subsidiaries, offtake and streaming agreements with other growers, and a joint venture project for large-scale greenhouse cannabis cultivation.

Auxly Cannabis Group Inc (OTCMKTS:CBWTF) Stock Chart

Chart courtesy of StockCharts.com

Why Auxly Stock Was Soaring

To be honest, I knew Auxly Cannabis Group Inc had upside potential, but I didn’t know that its stock could rise so quickly. In fact, the recent surge in CBWTF shares was primarily due to an unexpected announcement.

On July 25, 2019, Auxly Cannabis Group Inc announced that Imperial Brands PLC would invest around CA$123 million in the company. Under the agreement, Imperial Brands PLC will invest in Auxly’s convertible debenture and grant Auxly global licenses to its vaping technology and access to its vapor innovation business, Nerudia. (Source: “Auxly Welcomes $123 Million Investment and R&D Partnership with Imperial Brands,” Auxly Cannabis Group Inc, July 25, 2019.)

For those not in the know, Imperial Brands is one of the largest tobacco companies in the world. In its last fiscal year, the company generated more than £30 billion in revenue.

“This investment from Imperial Brands will enhance Auxly’s ability to continue to deliver on our business plans and accelerate our growth initiatives to expand our portfolio of branded derivative products,” said Auxly Cannabis Group Inc President Hugo Alves. “The timing is ideal as we prepare to bring our portfolio of innovative cannabis products to the Canadian market following the legalization of edibles, extracts and topicals later this year,” he continued. (Source: Ibid.)

Mind you, this is not the first time for a tobacco company to make a foray into the booming marijuana industry. In December 2018, Altria Group Inc (NYSE:MO), the maker of “Marlboro” cigarettes, announced a CA$2.4-billion investment in Canadian pot producer Cronos Group Inc (NASDAQ:CRON). (Source: “Altria to Make Growth Investment in Cronos Group,” Altria Group Inc, December 7, 2018.)

A Major Opportunity on the Horizon

Receiving an investment from a tobacco giant is certainly good news, especially when you take into account what Auxly has been working on.

You see, Auxly Cannabis Group Inc is preparing for what’s called the “second wave” of legalization. The Canadian government legalized recreational marijuana for adult use on October 17, 2018—that is referred to as the “first wave.” This October, the country is expected to legalize derivative cannabis products such as concentrates, edibles, and topicals for recreational use—the second wave.

The neat thing about derivatives is that they tend to have much higher margins than dried cannabis flower. Therefore, once these products get legalized this fall, Auxly Cannabis Group Inc could improve not just its revenue, but also its profitability.

And with access to Imperial Brands’ leading vaping technology and research and development capabilities, Auxly Cannabis now has a better chance of capitalizing on Canada’s second wave of marijuana legalization.

Analyst Take

Ultimately, keep in mind that the stock market is facing a lot of uncertainly at the moment, and some analysts are forecasting a major downturn on the horizon.

In the past, what we’ve seen is that when there is a pullback in the overall market, investors tend to first sell the stocks that went up the most. And since pot stocks have been some of the biggest gainers in the market for the past two years or so, the industry could take a big hit if there’s a market correction.

Still, the growth theme at Auxly Cannabis Group Inc remains intact. And the investment from a major tobacco company should only boost its competitiveness in the business. In the long run, CBWTF stock investors could get rewarded big time.