Why Investors Need to Check Out This Weed Stock
Remember the market sell-off in the fourth quarter of 2018?
It seemed that everything on U.S. stock exchanges—except for a few defensive industries—was deep in the doldrums. And marijuana stocks were hit particularly hard by the sentiment change.
This shouldn’t have come as a surprise. After a prolonged bull market, there’s a tendency for investors to first sell the stocks that went up a lot.
That’s why technology and cannabis—the two hot sectors prior to the market downturn—took some of the biggest losses as investors turned bearish.
But if you decided to bail on marijuana stocks after that pullback, you’d have missed a huge opportunity. That’s because, while we didn’t get a Christmas rally, U.S. equities made an incredible comeback just a few weeks into the new year, and cannabis stocks happen to be some of the biggest winners.
As was to be expected, market participants warmed up to industry heavyweights like Canopy Growth Corp (NYSE:CGC) and Aurora Cannabis Inc (NYSE:ACB). But smaller pot stocks have gotten some renewed investor interest as well.
In particular, I’m looking at CannaRoyalty Corp (OTCMKTS:ORHOF, CNSX:OH), which is often referred to by its registered business name, Origin House.
As a cannabis brands and products company with a market capitalization of under $500.0 million, Origin House may not get as much attention from the mainstream financial media as the bigger names in the industry. However, the amount of returns that the stock managed to deliver to investors this year has been nothing short of impressive.
In less than two months into 2019, the company’s shares have soared by 49.5%.
CannaRoyalty Corp (Origin House) Stock Chart
Origin House is headquartered in Ottawa, Ontario, Canada, but it’s very easy for American investors to get a piece of the action. This is because, while the company is listed on the Canadian Securities Exchange under the ticker symbol “OH,” its stock also trades over the counter here in the U.S. under the symbol “ORHOF.”
Chart courtesy of StockCharts.com
Capitalizing on the Golden State (of Marijuana)
Despite being a Canadian company, Origin House actually operates in California.
Now, if you’ve been following the cannabis industry, you’d know how special California is to the business. In 1996, California became the first U.S. state to legalize the use of medical cannabis. Then in 2016, the Golden State legalized recreational marijuana for people aged 21 years or older.
Today, California is not just the most populous state in the U.S., but also by far the nation’s largest marijuana market. According to BDS Analytics, cannabis sales in California are expected to reach $5.1 billion in 2019. (Source: “California Cannabis Market Expected to Reach $5.1 Billion Market Value,” PR Newswire, June 19, 2018.)
What makes Origin House stand out is that, despite not being a big marijuana stock in terms of market cap, the company has built a solid presence in the biggest American marijuana market.
Origin House’s strategy is to become a preeminent global house of cannabis brands. So far, it has supported the growth of over 50 brand partners. The company, which helps these brands reach more than 450 dispensaries in California, has around 70% of storefront dispensary penetration in the state.
Meanwhile, Origin House has five licensed facilities for manufacturing and distributing cannabis products. The company also has two more facilities that are currently under license application.
Like many soaring marijuana stocks, ORHOF stock has a good growth story. According to its latest earnings report, Origin House generated CA$6.6 million of revenue in the third quarter of 2018. That amount represented a whopping 790% increase year-over-year and an 89% increase sequentially. (Source: “Origin House Announces Sequential Revenue Growth of 89% for the Third Quarter 2018,” Origin House, November 28, 2018.)
The best part is that, while Origin House’s growth story started in the Golden State, it is now expanding into another huge North American market for marijuana: Canada.
A New Opportunity?
One of the most important pieces of news for the cannabis industry last year was Canada’s legalization of recreational marijuana for adult use.
And Origin House wasn’t going to miss this giant opportunity.
In September 2018, the company announced that it would acquire Canadian vape product retailer 180 Smoke for a total consideration of CA$40.0 million. (Source: “CannaRoyalty to Acquire Dominant Online and Retail Canadian Vape Operator, 180 Smoke,” Origin House, September 27, 2018.)
180 Smoke sells vape products both through its physical stores and online. In particular, the company has 26 tier-1 locations that it says would be “suitable for cannabis across three provinces.” 180 Smoke also says it “has the largest share of the online Vape market in Canada.”
Furthermore, the company estimates that 80% of its nicotine vape customers are also potential users of marijuana, so the task of customer acquisition is already complete. (Source: Ibid.)
Add it up, and you’ll see that Origin House is one of the most interesting plays on the booming cannabis industry.
Rather than just being a producer, the company has built a solid distribution platform and supporting contract manufacturing assets that are valuable for cannabis brands that want to grow their business.
If Origin House can keep churning out strong growth numbers, ORHOF stock could see even more upside.