Hydropothecary Stock Has One Advantage Over Bigger Rivals: Quebec

A Five Year Deal in Quebec
iStock/Pascal-L-Marius

A Five Year Deal in Quebec

No one claims that Hydropothecary Corp (OTCMKTS:HYYDF, CVE:THCX) is the biggest or baddest marijuana company around. Nevertheless, it has one thing rivals cannot match: the Quebec supply deal.

I’ve been writing about HYDFF stock for several months now. What stands out to me is that Hydropothecary has a growing business, not just random “grow-ops” that could lead to a marijuana supply glut.

For example, we highlighted the company’s e-commerce partnership with Shopify Inc (NASDAQ:SHOP). We also touched on its efforts to maximize yield with “plant tissue culture propogation,” its bilingual 24-hour customer service, and its existing medical marijuana business.

Individually, these points are unimportant. But take a step back. Look at the whole board, and a pattern begins to emerge: namely, that Hydropothecary is a smart company making smart moves.

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When I first voiced this opinion, some thought I was crazy. Canada is packed to the brim with marijuana companies. Everywhere you look, there’s a group of entrepreneurs wrangling together enough cash to go public. Why this stock?

Well, because I see these tailwinds—yield maximization, premium customer service, and medical marijuana sales—converging on a higher price point for HYDFF stock.

There’s a caveat, though: Hydropothecary stock soars if, and only if, there is substantial revenue growth after Canada legalizes adult recreational use on July 1, 2018.

I’ll be the first to admit that my prediction relied on qualitative rather than quantitative factors. But it turns out I was too conservative, not too liberal. Just scroll down to the HYDFF stock chart to see what I mean.

Hydropothecary Stock Forecast 2018

This year, Hydropothecary Corp signed a five-year recreational weed supply deal with Quebec’s Société des alcools du Québec (SAQ) to supply 200,000 kilograms of weed.

As soon as the deal was announced, this happened to HYDFF stock price:

Chart courtesy of StockCharts.com

Let’s get into specifics.

The first thing you should know is that SAQ regulates alcohol distribution in Quebec. So if you live in Montreal or Quebec City, you don’t have a choice about where to buy liquor. You have to walk into an SAQ retail store; there’s a blanket state-owned monopoly.

This may sound strange to American ears, because U.S. alcohol distribution is such an open market that you can buy 40 ounces of whiskey from the corner drug store. While there are a few states that buck the trend, like Alabama and Utah, the larger point stands: Canada’s alcohol market is more tightly regulated than its U.S. counterpart.

These alcohol markets set a precedent.

In Colorado and Oregon, an open market led to thousands of dispensaries cropping up overnight. They had to register with the state government and pay a license fee, but their entrepreneurship was allowed, even encouraged.

Not so in Quebec. In the Canadian province, there’s one authority: the SAQ. It has all the bargaining power.

This might irritate free market proponents, but it works to our advantage in this case.

You see, Hydropothecary is based out of Quebec. It contributes jobs and resources to the state economy, which is presumably why SAQ gave it priority over bigger rivals like Canopy Growth Corp (OTCMKTS:TWMJF, TSE:WEED) and Aurora Cannabis Inc (OTCMKTS:ACBFF, TSE:ACB).

In fact, Hydropothecary Corp landed the biggest weed contract, bar none. It has guaranteed revenue for the next five years, which should, at the very least, keep it ahead of some competitors.

Analyst Take

I am starting to worry about a marijuana supply glut. The rapid increase in production is scary and could bring down prices faster than we expect, leading to a crash in marijuana stock values.

But investors can still make money in this sector. All you need to do is identify investments like HYDFF stock. These little-known marijuana penny stocks have explosive upside, especially when paired with strong fundamentals like the Quebec supply deal.