This Beaten-Down Pot Stock Deserves a Look
If you’ve been following the cannabis industry for the past few months, you’ll know that pot stock investing is not just sunshine and rainbows. While many marijuana stocks made solid gains earlier this year, more recently, investor sentiment hasn’t exactly been that bullish toward the industry.
One of the beaten-down names in the marijuana industry lately is Flowr Corp (OTCMKTS:FLWPF, CVE:FLWR), a cannabis producer headquartered in Toronto, Ontario, Canada.
Over the past month, shares of FLWPF stock plunged more than 30%, and that’s after a sizable surge on July 19.
For the most part, investors like to talk about the soaring pot stocks, not the beaten-down ones. And because Flowr is a small-cap name trading only over the counter for American investors, it doesn’t get much attention from the mainstream financial media.
Still, there is a very simple reason why investors should check out this pot stock right now: one indicator says that a rally could be on the horizon.
That indicator is the relative strength index (RSI). Based on the closing prices of a recent trading period, it compares the magnitude of recent gains to recent losses. RSI is measured on a scale from zero to 100. A stock is considered to be overbought if its RSI is approaching 70 and it’s considered oversold if the RSI approaches 30.
Take a look at the following Flowr stock chart; the RSI is shown above the company’s stock price.
Flowr Corp (OTCMKTS:FLWPF) Stock Chart
Chart courtesy of StockCharts.com
Note that, in the previous trading session, the 14-day RSI of Flowr stock fell below 30, indicating that the stock was extremely oversold.
In most cases, a stock’s RSI cannot stay on the floor forever. When sentiment starts to change, the extremely oversold FLWPF stock could see a short squeeze.
Just take a look at what happened to Flowr shares last time this happened.
Flowr Corp went public through a reverse takeover in September 2018. In hindsight, that was probably not the best time to go public because the stock market was experiencing a serious downturn in the fourth quarter.
Unsurprisingly, Flowr stock started tumbling not long after it became publicly traded. And the last time FLWPF’s 14-day RSI dipped below 30 was in early December of 2018.
What followed was a massive rally. In the three-month period after Flowr’s 14-day RSI broke below 30 in December, FLWPF stock went from $2.18 per share to $3.59 per share, marking a gain of 64.7%.
I’m not saying that this pot stock will for sure skyrocket again. But given what the company has been doing, I don’t think that its RSI will stay low for much longer.
Flowr Corp Is Running a Growing Business
In today’s market, investors like pot stocks primarily because of their growth potential. And while Flowr stock isn’t exactly an investor favorite based on its recent momentum, the company is indeed running a growing business.
In the first quarter of 2019, Flowr Corp produced 279,760 kilograms (616,765 pounds) of cannabis, representing an eight-percent increase sequentially. (Source: “The Flowr Corporation Announces Results for the First Quarter 2019,” Flowr Corp, May 17, 2019.)
During the quarter, the company sold 211,195 kilograms (465,605 pounds) of cannabis. While the amount was substantially less than the 405,584 kilograms (894,159 pounds) sold in the fourth quarter of 2018, note that fourth-quarter sales included inventory that was produced in the prior quarters of 2018.
Other than expanding its production, Flowr managed to sell its harvest at a higher price. In the fourth quarter of 2018, the company’s average net realized price was CA$7.08 per gram of cannabis. In the first quarter of 2019, Flowr’s selling price edged up 8.8% to CA$7.70 per gram of pot.
Moreover, the company plans to further expand its presence through a major acquisition. Last month, Flowr announced that it would acquire 100% interest in European-based cannabis company Holigen Holdings Limited.
Notably, Holigen is developing a seven-million-square-foot outdoor cultivation facility in Portugal, which is expected to be operational in the second half of this year. At full capacity, Holigen’s Portuguese facility would be able to produce more than 500,000 kilograms (1,102,311 pounds) of cannabis annually. (Source: “Flowr to Acquire 100% Interest in Holigen,” Flowr Corp, June 24, 2019.)
Looking around, most pot companies don’t have a planned production capacity as high as half a million kilograms. If things go as Flowr has planned, the company would become one of the biggest players in the global cannabis industry.
Furthermore, having a presence in Europe through the Holigen acquisition could open up new market opportunities for Flowr. Right now, more than 20 countries in Europe have medical cannabis programs.
As is the case with most small-cap pot stocks, I wouldn’t call Flowr stock a slam dunk. Flowr Corp has strong plans for its future, but how those plans will be executed could come with a degree of uncertainty.
Still, based on the severely oversold condition in FLWPF stock, it could represent an opportunity for pot stock investors.