MEDFF Stock Falls Despite German Partnership
I have long maintained that marijuana companies that maintain an international focus will be the most successful in the long run. It’s strange, then, that MedReleaf Corp (OTCMKTS:MEDFF, TSE:LEAF) recently saw the price of MEDFF stock fall after the company announced a German expansion deal.
While a global partnership is no guarantee of a stock price bump, LEAF stock, at the very least, should not have shown losses following the announcement of the deal. What’s even more surprising is that the stock actually performed quite poorly in the weeks following the news of the German deal. So what gives?
First, let’s take a closer look at the deal.
In March, MedReleaf announced that it had entered an agreement to become the largest provider of medical marijuana to Cannamedical Pharma GMBH, a German company. MedReleaf is to provide Cannamedical with monthly supplies of five of its premium cannabis strains. (Source: “MedReleaf signs supply agreement with Cannamedical Pharma GmbH in Germany,” Cision, March 19, 2018.)
On the face of things, this is a good deal.
Germany is one of the leading markets in the legal marijuana industry, with a large population and an openness to medical marijuana. The country’s current medical marijuana laws came into effect on March 10, and Germany has since looked to outside providers to help cover its growing demand.
But there’s an important caveat to this deal: it can’t kick into gear until MedReleaf receives a Good Manufacturing Practices (GMP) certification from the European Medical Agency and an export permit from Health Canada.
While there’s no evidence that either of the two applications will be held up, it still puts a damper on the success of the deal; a hitch in either one of them could derail the company’s near-term forecast.
Chart courtesy of StockCharts.com
Beyond the Cannamedical partnership, MedReleaf Corp stock may also be suffering a bit as a result of its latest quarterly financial report.
While the company netted higher revenue and sales, the cost of production per gram went up significantly, compared to the year before, from $1.55 to $1.83. The increase was attributed to higher overhead at its facility and its increased plant operating costs. (Source: “MedReleaf Reports Third Quarter Fiscal 2018 Results,” MedReleaf Corp, February 13, 2018.)
The other numbers were strong, but the fact that the company is increasing its production costs is a concern. The company did, however, mention that it would work to decrease costs.
I believe that the lack of licensing, alongside some aftershock from MedReleaf’s quarterly financial report, has tapered the strength of the German expansion deal, leading to the decrease in the MEDFF stock price that we’re seeing today.
MedReleaf Stock Forecast
So the German deal didn’t quite pan out the way MedReleaf had hoped. We’re actually seeing a lot of this these days, with companies pivoting toward lucrative international markets but without reaping the rewards that are usually associated with those types of deals.
In the past, the market has rewarded these types of moves with stock gains and adulation in the press. Due to the marijuana industry downturn that we have experienced in 2018, however, the reactions of the market have been far more tapered. Investors are naturally wary that going full bore into marijuana stocks like they did in late 2017 will lead to overvaluation followed by corrections.
So that explains why MedReleaf had trouble with its German expansion not yielding the results that it would have liked to see.
But what about the future of the company? Its stock price decreased by more than 20% in the past month, but does that mean it’s time to file away MedReleaf stock?
In my mind, there is still a lot of upside to MedReleaf. The company is only temporarily hobbled by the correction, not permanently crippled.
In fact, as with many of the marijuana stocks that have taken a pounding in 2018, I believe that the lower MEDFF stock prices represent excellent value for those entering the market. The eternal question is, when will the stock hit bottom and become ready for a rebound?
I foresee a market-wide rally in the summer at the latest, with strong companies like MedReleaf being some of the primary beneficiaries.
MedReleaf also just released a new line of cannabis products under its “AltaVie” brand. This new product line is meant to appeal to premium users, targeting another niche in the market that could pay dividends down the line. (“MedReleaf Launches AltaVie, a Premium Cannabis Brand Designed with the Higher-End, Wellness-Focused Consumer in Mind,” Cision, April 3, 2018.)
“With AltaVie, we now have a premium wellness line that complements our recreational and medical brands, all of which lever the company’s award-winning products, leading quality and production standards,” said MedReleaf CEO Neil Closner.
International deals in the marijuana market usually lead to a surge in stock value, but MEDFF stock is an outlier, in that it fell despite the news of its German expansion.
This goes to show that nothing is ever certain in the market, and that goes double for an industry known for its volatility.
Having said that, the introduction of its new, targeted line of marijuana products will likely help the company down the line. And its international ambitions are exactly the type of thing you want to see from a marijuana company.
I expect LEAF stock to bounce back, but, at the same time, the German expansion is a pretty big miss, considering that the news about the Cannamedical deal should have sparked a boost in MedReleaf Corp stock.
There is still value to be found in MEDFF stock, but it will take deft timing to truly maximize your gains.