One neat thing about pot stocks is that, because the industry is still at a nascent stage, you can find shares of fast-growing businesses trading at penny-stock levels.
Check out Vireo Health International Inc (OTCMKTS:VREOF, CNSX:VREO), for instance. As a multi-state medical cannabis company, Vireo Health has delivered some very impressive growth rates over the years. But right now, VREOF stock trades around $1.20 apiece, which could be an opportunity to pot stock investors.
You see, while the medical pot industry may not seem as exciting as the recreational one, it does represent a substantial market opportunity. In the U.S., medical pot is now legal in 35 states, plus D.C., Guam, Puerto Rico, and the U.S. Virgin Islands. Recreational pot, on the other hand, is only legal in 15 states, plus D.C., Guam, and the Northern Mariana Islands.
Vireo Health entered the medical pot industry by winning one of the two vertically integrated licenses in Minnesota in 2014. Since then, the company has grown significantly.
According to the company’s latest investor presentation, it now has 11 manufacturing licenses, 32 dispensary licenses, eight research partnerships, 12 pending patents, and two hemp licenses. (Source: “Canaccord Virtual Conference,” Vireo Health International Inc, September 30, 2020.)
With a presence in 10 states and Puerto Rico, Vireo Health has an addressable market population of 80 million.
Like a lot of smaller pot companies, Vireo Health International Inc is listed on the Canadian Securities Exchange. But because the stock also trades over the counter in the U.S., it’s quite convenient for American investors to get a piece of the action.
It’s important to note that, while the cannabis industry is known for having huge growth potential, it’s not that easy for a company to expand its presence. For instance, you can’t just buy a piece of land and start cultivating marijuana—you need a license. Those licenses are limited and, as you might expect, highly sought after.
The good news is, because the licenses can be transferred from one location to another, it’s possible for existing pot companies to increase their production capacity without getting new licenses.
On that note, Vireo Health has a 22,000-square-foot facility in Hurlock, MD. In June, the company announced that it would acquire an 110,000-square-foot greenhouse facility in Massey, MD for a total consideration of $1.3 million. (Source: “Vireo Health Expands Maryland Operations with Purchase of 110,000 Sq. Ft. Greenhouse,” Vireo Health International Inc, June 19, 2020.)
Vireo Health planned to transfer its cultivation license in the state from its Hurlock facility to the bigger Massey Facility, while maintaining its processing and manufacturing operations at the Hurlock facility. With this transfer, the company expects its biomass cultivation capacity in the state of Maryland to increase by nearly 12 times.
Of course, with the COVID-19 pandemic and its economic impact, you might be wondering whether the outlook has changed for U.S. cannabis operators.
Well, in the case of Vireo Health International Inc, its medical cannabis businesses have received “essential service” designations in each of their operating states. As a result, the company has been able to continue its operations despite the pandemic.
Better yet, the business has been growing.
In the second quarter of 2020, Vireo Health generated $12.2 million of total revenue (a measure that includes contributions from discontinued operations), representing a 70% increase year-over-year. Reported revenue, which excludes discontinued operations, grew 59% from a year ago to $10.8 million. (Source: “Vireo Health Announces Second Quarter 2020 Financial Results,” Vireo Health International Inc, August 26, 2020.)
The company has made progress on both the retail and wholesale fronts. Vireo Health’s second-quarter retail revenue came in at $9.2 million, marking a 46% increase from a year ago.
This was mainly due to higher patient enrollment and average revenue per patient in Minnesota and New Mexico, alongside contributions from new medical pot dispensaries in Pennsylvania.
Wholesale revenue, on the other hand, jumped by a staggering 256% year-over-year to $1.6 million, driven by growth of wholesale operations in Maryland, New York, and Ohio.
One thing that happened after the second quarter was the completion of Vireo’s previously announced divestiture of its Pennsylvania manufacturing and processing operations (PAMS). The sale, which closed on August 11, boosted the company’s cash position to $21.1 million.
Going forward, medical cannabis operators will likely face uncertainties related to the economy and the changing regulatory environment. However, Vireo Health is set on making strategic growth investments.
In the company’s second-quarter earnings conference call, its chief financial officer, John Heller, said, “Between now and the end of the first quarter of next year, we’re expecting to invest between 8 million to 9 million in strategic growth investments in Arizona, Maryland, Minnesota, and New Mexico.” (Source: “Vireo Health International Inc. (VREOF) CEO Kyle Kingsley on Q2 2020 Results – Earnings Call Transcript,” Seeking Alpha, August 26, 2020.)
Heller continued, “These projects should be complete by the end of Q1 2021 and are expected to contribute to revenue growth and margin expansion, giving us confidence in our ability to begin generating positive cash flow from operations around the midpoint of next year.”
Vireo Health International Inc (OTCMKTS:VREOF) Stock Chart
Chart courtesy of StockCharts.com
As you can see from the chart, Vireo Health stock has made a strong comeback since the market crash earlier this year. Over the past six months, the company’s share price has more than doubled.
Right now, Vireo Health International Inc carries strong momentum in top-line growth. If the company can become operating-cash-flow-positive in mid-2021, as management projects, it would give investors a good reason to continue liking VREOF stock.