MedReleaf Stock Forecast 2018: This Marijuana Company May Be The “iOS” to all “Androids”
This Marijuana Company Is Striking All the Right Notes Ahead of Legalization Day
Marijuana stocks are the gravy train that everyone wants to ride in 2018. This is the year that the North American marijuana industry runs at full throttle. There’s one potential highflier that we’ve been keenly watching as this industry blooms: MedReleaf Corp (OTCMKTS:MEDFF), (TSE:LEAF).
Before we divulge more on our MedReleaf stock forecast for 2018, let me rehash three interesting developments that have taken place this year.
- On January 1, 2018, the first-ever legal recreational marijuana sales in the United States took place in California. Lineups were seen outside marijuana dispensaries in the state.
- Another U.S. state kept the ball rolling by passing a marijuana legalization bill through its legislature. Vermont became the first U.S. state this year to legalize recreational marijuana, joining the list of eight other states that legalized it in the past two years.
- For the first time in history, it was revealed that legal marijuana sales surpassed alcohol sales in an American city. Aspen, Colorado reported this month that its annual marijuana sales for 2017 amounted to $11.3 million, slightly higher than alcohol sales, worth $10.5 million. (Source: “Marijuana sales overtake alcohol in US city for first time,” Independent, February 9, 2018.)
It’s nearly certain now that America, albeit slowly, will be moving toward legalizing the green drug. Whether the Trump administration likes it, the social propensity toward marijuana use can no longer be disregarded.
But while the U.S. is approaching full legalization at a snail’s pace, northern neighbor Canada is moving more briskly. This is where the real pot boom has been taking place as of late.
The Canadian marijuana industry has witnessed tremendous growth, all on the back of one initiative. The Canadian government is fully legalizing weed this year.
Back in 2015, when the Liberal government gave a hint that cannabis legalization was in the cards, Canada delivered us the first marijuana “unicorn.” Canopy Growth Corp (OTCMKTS:TWMJF), (TSE:WEED) became the first legal marijuana company to reach a billion-dollar valuation.
Within two years, this nascent industry gave birth to three more such unicorns: Aurora Cannabis Inc (OTCMKTS:ACBFF), (TSE:ACB), Aphria Inc (OTCMKTS:APHQF), (TSE:APH), and MedReleaf.
Today, these four are the biggest North American marijuana companies, in terms of their market valuations. While a lot is said about the former three companies, MedReleaf usually slips under the radar. So we’ll be covering this underdog today. There’s one striking reason why our MedReleaf stock forecast for 2018 is bullish.
MedReleaf Marijuana Stock Is an Underdog You Should Be Watching
MedReleaf reported its third-quarter results on Tuesday and lifted the bar another notch. The company set a new record of quarterly sales, making $11.4 million in revenue. Sales of cannabis extracts, primarily oils, saw a major boost in sales, recording nearly a 700% year-over-year increase. (Source: “MedReleaf Reports Third Quarter Fiscal 2018 Results,” MedReleaf Corp, February 13, 2018.)
Despite being a much smaller company than its peers, MedReleaf is neck-and-neck with Aurora, which made $11.7 million in sales in the most recent quarter.
MedReleaf trails Canopy Growth, which raked in more than $17.5 million in sales, but it beat Aphria, which made about $8.5 million in revenue in the most recent quarter.
Mind you, compared to these heavyweights, MedReleaf is a small-scale producer. Its annual production capacity is about 9,500 kg, which is being scaled to reach 28,000 kg this year. Compare it to Canopy Growth, Aurora or Aphria—all of which are expected to surpass 100,000 kg in production capacity this year.
So, how exactly did MedReleaf manage to enter the same league as the top dogs? The one-word answer may be branding.
MedReleaf advertises itself as the only ISO 9001-certified marijuana producer, which sets it apart from the rest on grounds of excellent quality controls.
The company also promotes itself as Canada’s best licensed producer of marijuana, a title that it earned at the 2017 Canadian Cannabis Awards hosted by Lift, an online marketplace for medical cannabis. MedReleaf also won 10 other awards, beating dozens of other marijuana companies.
Premium-quality products and good customer service have helped the company make a name for itself.
Branding and Partnerships
This is where things get exciting. To further expand its brand consciousness, MedReleaf has just announced an adult-use recreational marijuana brand even before recreational marijuana use is legal. What’s even more interesting is the fact that its first product has already begun selling.
But how is that even possible? Let me explain.
MedReleaf has partnered with brewer Amsterdam Brewing Co. to launch a new brand called “San Rafael ‘71.” The brand’s first product is the “4:20 Pale Ale” beer, which doesn’t contain marijuana but pays homage to the marijuana industry with its symbolic name and 4.20% alcohol concentration.
Darren Karasiuk, MedReleaf’s vice president of strategy, explained the product launch:
“While cannabis aficionados eagerly anticipate the day they can buy legal products, we thought we’d offer the San Rafael ’71 4:20 Pale Ale for them to enjoy while they wait. San Rafael ’71 4:20 Pale Ale does not contain any cannabis, but it will take you back to where it all began and introduce Canadians to the spirit of adventure, exploration and freedom at the heart of 4:20.”
(Source: “MedReleaf introduces first adult-use recreational cannabis brand: San Rafael ’71 launches with cannabis-inspired beer,” MedReleaf Corp, February 9, 2018.)
So, while most marijuana companies are busy with large-scale expansions in efforts to reach bigger target markets, this underdog is focusing on creating a premium-brand niche in the industry.
It seems like MedReleaf’s strategy has taken cues from Apple Inc. (NASDAQ:AAPL). The technology behemoth grew largely on the back of strong brand awareness. Its “iOS” smartphones, despite lagging “Android” smartphone manufacturers like Samsung in terms of numbers of units sold, managed to build a cult following.
MedReleaf may likewise be able to strike the right chord with consumers using this line of action.
Further, to reach markets across Canada, MedReleaf has entered into a partnership with Canada’s largest drugstore chain, Shoppers Drug Mart Corporation (TSE:SC). As part of the deal, the chain will be selling MedReleaf products at its 1,200 stores across the country.
So let’s not rule out MedReleaf on the grounds of its low-scale expansion. The company has found an indirect channel to reach marijuana users across the country.
Analyst Take
MedReleaf keeps a low profile, so it receives much less press coverage compared to its rival marijuana bigwigs. But this underdog is covertly growing into a major competitor that could give its top three arch rivals a serious run for their money.
With Canada’s full legalization day just around the corner, we expect marijuana stocks to enter into another bull run. MedReleaf stock may likewise be a winner.
At this point, however, you deserve to be given fair warning before you undertake any investment decisions. The marijuana industry is getting crowded with speculators, and most marijuana stock prices are trading for lofty price multiples. Investors must perform due diligence before jumping in with both feet.
Having said that, our MedReleaf stock forecast for 2018 is upbeat. We expect this stock to make its way toward the $30.00 mark as we approach Canada’s marijuana legalization day.
