Neptune Wellness Solutions Inc: New Growth Trajectory Could Help This Weed Stock Triple in Price

Neptune Wellness Solutions Inc: New Growth Trajectory
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Neptune Wellness Solutions Inc, One of 2019’s Top Weed Stocks

Neptune Wellness Solutions Inc (NASDAQ:NEPT) has been one of the top cannabis stocks in 2019, climbing 65% year-to-date. It was also one of the top marijuana stocks in April, advancing more than 26%.

Neptune stock has been bullish for a number of great reasons.

Along with a strong balance sheet, the company recently announced that it had received licensing from Health Canada to process cannabis and that it had begun commercial production and delivery of cannabis extracts.

On top of that, Neptune has expanded its offerings of turnkey solutions in the U.S. to include hemp ingredients.

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Currently trading around $4.30 per share, everything is in place for NEPT stock to triple in price.

Neptune Wellness Solutions Inc Overview

Neptune Wellness Solutions is a cannabis company that specializes in the extraction, purification, and formulation of health and wellness products. (Source: “Mission and Vision,” Neptune Wellness Solutions Inc, last accessed May 7, 2019.)

Neptune Wellness Solutions is active in five areas:

  1. “Cannabis Business” (extraction purification and formulation)
  2. “Ingredients” (sourcing marine oils, seed oils, and specialty ingredients),
  3. “Turnkey Solutions” (developing branded products for customers: softgels, capsules, liquids, and powders)
  4. “Pet Supplements”
  5. “Consumer Brand”

The company, which operates a 50,000-square-foot facility in Sherbrooke, Quebec, is nearing completion of its Phase II expansion. That project is expected to progressively increase Neptune’s production capacity to 200,000 kilograms (roughly 441,000 pounds). (Source: “Neptune Announces Third Quarter Results,” Cision, February 13, 2019.)

Based on market developments and customer feedback, Neptune increased its estimated processing sales volume for the first year of commercialization to between 30 and 50 metric tons (between 66,140 and 110,230 pounds). (Source: Ibid.)

The company has also initiated planning for Phase III expansion, which will boost its processing capacity to 13.2 million pounds.

The huge volume is expected to cover Neptune’s Cannabis Business operating costs and help it achieve positive earnings before interest, taxes, depreciation, and amortization (EBITDA) and operational cash flow in the next fiscal year, which began on April 1, 2019.

Neptune Wellness Solutions Inc Stock

Neptune Wellness Solutions Stock Information
Market Cap $348.4 million
Beta 3.07
52-Week Change 68.3%
52-Week High $5.14
52-Week Low $2.31
Shares Outstanding 80.0 million
Float 58.7 million
50-Day Moving Average $3.66
200-Day Moving Average $3.42

(Source: “Neptune Wellness Solutions Inc. (NEPT),” Yahoo! Finance, last accessed May 8, 2019.)

Neptune Wellness Solutions stock was victim to the marketwide sell-off in the fourth quarter of 2018. But it fared much better than most stocks, especially marijuana stocks.

Despite its fourth-quarter swoon, NEPT stock advanced 5.8% in 2018. Since then, it has been one of the best-performing cannabis players.

Chart courtesy of StockCharts.com

Thanks to the company’s strong balance sheet and commercial production of cannabis extracts, patient investors could finally see Neptune report strong financials, which should help juice its share price in the normally quiet May to October period.

Neptune Expands Its Existing Offerings of Turnkey Solutions

On April 15, Neptune announced that its “Solutions Business” began offering turnkey product development with hemp-derived ingredients to clients in the U.S., with orders already being processed. (Source: “Neptune Expands Existing Offering of Turnkey Solutions in the U.S. to Include Hemp Ingredients,” Neptune Wellness Solutions Inc, April 15, 2019.)

“The U.S. market for hemp is developing rapidly and represents a significant opportunity for the consumer products industry,” said CEO and President Jim Hamilton.

“Neptune is now offering products and services to American brands that want to create a unique hemp-based portfolio, with products made exclusively in the U.S. for the U.S.” (Source: Ibid.)

Neptune Begins Commercial Production & Shipping of Cannabis Extracts

On March 26, Neptune Wellness announced that it began commercial production and shipping of cannabis extracts from its licensed facility in Sherbrooke. (Source: “Neptune Begins Commercial Production and Shipping of Cannabis Extracts,” Neptune Wellness Solutions Inc, March 26, 2019.)

What this means is, in its fourth quarter ended March 31, 2019, Neptune will record revenue for its Cannabis Business for the first time. This will add to the revenue generated by the company’s “Nutritional Business” and put Neptune on an entirely new growth path.

“Generating Cannabis Business revenue is a long-awaited milestone for Neptune, and we continue to expect positive EBITDA from this business within our first year of production,” said CFO Mario Paradis. (Source: Ibid)

Neptune Wellness Solutions Inc Q3 Results

On February 13, Neptune Wellness announced its financial results for the third quarter ended December 31, 2018.

Third-quarter revenue increased to CA$6.5 million. Excluding revenues from the company’s krill oil manufacturing business sold on August 7, 2017, comparable third-quarter 2017 revenue was CA$6.4 million. (Source: Cision, op cit.)

Neptune reported a third-quarter net loss of CA$3.7 million, versus net income of CA$5.9 million in the same prior-year period.

On an adjusted basis, Neptune reported a net loss of CA$1.9 million, compared to CA$1.3 million for the same period in 2017. The CA$0.6 million difference is attributed mostly from investments into the Cannabis Business.

Neptune ended the third quarter with cash and cash equivalents of CA$15.6 million.

Analyst Take

Neptune Wellness Solutions stock investors have been stuck in a holding pattern, but their patience has been rewarded.

As mentioned earlier, in January, the company announced that it had received licensing by Health Canada to process cannabis. Most importantly, in late March, it began commercial production and shipping of its cannabis extracts.

Neptune Wellness Solutions Inc already has firm commitments for at least 330,700 pounds of its products. It expects that number to more than double over the next three years. This, in the company’s own words, puts it in a new growth trajectory in the expanding global cannabis market.