Neptune Wellness Solutions Stock Breaks Out on Growing Optimism
Despite growing optimism over possible U.S. legislative changes, cannabis stocks have been taking a beating. Since cannabis stocks peaked in March, the Horizons Marijuana Life Sciences ETF (OTCMKTS:HMLSF, TSE:HMMJ) has tumbled 29%. The ETFMG Alternative Harvest ETF (NYSEARCA:MJ) has followed a similar trajectory, falling 26%.
Neptune Wellness Solutions Inc (NASDAQ:NEPT), though, has been going in the other direction, advancing about 140% year-to-date and about 65% since the start of March.
Why the bullish sentiment? In addition to having a strong balance sheet, significantly expanding its extraction capabilities, and signing multi-year extraction agreements with cannabis heavyweights Tilray Inc (NASDAQ:TLRY) and Green Organic Dutchman Holdings Ltd (OTCMKTS:TGODF, TSE:TGOD), the company has been getting some love from Wall Street.
Neptune recently closed a huge private placement involving insiders and a hedge fund. That kind of support helped buoy the Neptune Wellness Solutions stock price and is a vote of confidence in the company’s ongoing prospects.
The company also recently closed on a previously announced acquisition of North Carolina-based SugarLeaf Labs, expanding its U.S. extraction capabilities.
Neptune Wellness Solutions Inc Overview
Neptune Wellness Solutions operates the largest cannabis extraction facility in Canada. The company began commercial production in the fourth quarter of 2018 and began shipping cannabis extracts from its 50,000-square-foot facility in March. (Source: “Neptune Announces Fourth Quarter Results,” Neptune Wellness Solutions Inc, June 12, 2019.)
Neptune’s annual production is projected to hit 440,924 pounds in July 2019. The entire amount is fully contracted for both fiscal 2020 and 2021. The next phase, which is expected to be completed by the end of 2019, will increase the company’s total extraction capacity to 13.2 million pounds.
|NEPT Stock Information|
|Market Cap||$545.4 Million|
|Shares Outstanding||79.3 Million|
|50-Day Moving Average:||$4.83|
|200-Day Moving Average:||$3.97|
(Source: “Neptune Wellness Solutions Inc. (NEPT),” Yahoo! Finance, last accessed July 26, 2019.)
Neptune Wellness Solutions stock has been, for the most part, on a solid, upward path in 2019.
The company’s share price broke out to the upside, hitting a new 52-week high on July 22 after Neptune announced that it closed on the aforementioned private placement. NEPT stock’s price is also being supported by the company’s recent acquisition.
Neptune’s share price could face headwinds and give up short-term ground to profit-taking, but it should trend steadily higher in the last quarter of 2019 and in 2020.
Chart courtesy of StockCharts.com
$41-Million Private Placement
On July 18, Neptune Wellness announced that it had closed on a $41.0-million private placement. (Source: “Neptune Wellness Solutions Closes US$41 Million Private Placement,” Neptune Wellness Solutions Inc, July 18, 2019.)
Neptune President and CEO Michael Cammarata and Chairman of the Board John Moretz invested $5.0 million while Perceptive Advisors, a privately held New York-based hedge fund (Neptune’s biggest shareholder), was the largest participant. That deal shows there is a lot of support for what the company is doing.
Proceeds will be used to fund Neptune’s acquisition of SugarLeaf Labs, with the balance being used as working capital and for general purposes.
With Neptune’s current annual capacity of 440,924 pounds fully contracted until the end of 2021, this private placement financing comes at a critical junction in the company’s growth plans.
SugarLeaf Labs Acquisition Expands U.S. Extraction Capabilities
On July 24, Neptune announced that it had completed its acquisition of the cannabis oil extractor SugarLeaf Labs.
With the acquisition, Neptune became the only cannabis extractor under coverage with a physical presence in the U.S. hemp-derived cannabidiol (CBD) market. That market is expected to reach $16.0 billion by 2025. (Source: “Neptune Closes SugarLeaf Acquisition, Expanding U.S. Extraction Capabilities,” Neptune Wellness Solutions Inc, July 24, 2019.)
The acquisition provides Neptune with a 24,000-square-foot facility that is capable of processing 3.3 million pounds of hemp annually, with opportunities to expand capacity.
“The acquisition of SugarLeaf, combined with Neptune allows us to create a leading North American extraction platform with significant capacity available to serve our customers on both sides of the border,” said Cammarata. (Source: Ibid.)
Neptune Wellness Solutions Inc continues to defy the headwinds affecting much of the cannabis industry. That’s because there is a lot going on at the company, with investors and hedge funds liking what they see.
The company recently began commercial production and shipping cannabis extracts, closed on a second facility in the U.S., signed multi-year extraction agreements, closed on a multi-million-dollar private placement, and is expanding its extraction capacity.
Neptune Wellness Solutions stock will, no doubt, have periods of volatility, but thanks to recent developments, it looks like its strong growth trajectory will continue.
What could that look like? A 12-month price target of $12.50 for NEPT stock represents a one-year return of about 110% from its current level.