This Pot Stock Deserves a Serious Look
Not all low-priced pot stocks have explosive upside potential, but this one could be a big opportunity.
I’m looking at WeedMD Inc (OTCMKTS:WDDMF, CVE:WMD), a cannabis company headquartered in Toronto, Ontario, Canada. WeedMD Inc is the parent company of WeedMD Rx Inc., a federally licensed producer of cannabis products for both the medical and recreational markets in Canada.
Because WeedMD is not listed on a major U.S. stock exchange, the company doesn’t get much attention from mainstream financial media. Still, priced at just $1.13 per share, WDDMF stock could represent a serious opportunity for pot stock investors.
Let me explain.
Like many marijuana stocks, WeedMD stock hasn’t been a hot commodity recently. Because investors got more risk-averse as market uncertainty increased, they have been unloading the volatile tickers in the cannabis industry. Over the past six months, WDDMF stock went from $1.60 to $1.13, marking a drop of almost 30 percent.
But don’t think for one second that the tumble in WeedMD stock was due to the slowing down of its business. In fact, despite the company’s lackluster share price performance in recent months, WeedMD Inc has actually been firing on all cylinders.
Just take a look at the company’s latest earnings report and you’ll see what I mean.
WeedMD reported second-quarter results last month. During the quarter, the company generated net sales of CA$8.0 million, which marked a new all-time high. The top-line number represented a 282% increase year-over-year and a 139% increase sequentially. (Source: “WeedMD Reports Second Quarter 2019 Financial Results,” WeedMD Inc, August 28, 2019.)
One of the key performance metrics for a pot stock is how much weed the company sells. And on that front, WeedMD does not disappoint. In the second quarter, the company sold 1,979 kilograms (4,363 pounds) of dried marijuana, a whopping 150% increase from the first quarter.
Other than selling a lot more pot than before, WeedMD Inc also managed to streamline its operations and improve its production efficiency. In the reporting quarter, the company’s cultivation cost per gram of cannabis lowered by 30% sequentially to CA$0.96.
Also, WeedMD’s weighted-average cost per gram to produce and package finished cannabis products (inclusive of all costs, direct and indirect) was CA$1.84 in the second quarter of 2019. This represented a substantial improvement from the CA$2.90 per gram in the first quarter of 2019 and the CA$3.59 per gram in the second quarter of 2018.
With lower production costs, the business became a lot more lucrative. In the second quarter, WeedMD’s gross profit before changes in fair value was CA$3.7 million, which translated to a gross margin of 46%. To put that in perspective, the company’s gross margin in the first quarter was just 15%.
A Growing Business in the Cannabis Industry
The blunt reality is, while WDDMF stock hasn’t gotten much investor attention lately, the company runs a solid business with serious growth potential.
Right now, WeedMD has a 158-acre wholly owned cultivation center located in Strathroy, Ontario. The facility has more than 610,000 square feet of greenhouse space with automated climate control, fertigation, and lighting systems. (Source: “Annual General Meeting June 2019,” WeedMD Inc, last accessed September 4, 2019.)
The company currently has 110,000 square feet of the greenhouse licensed for cultivation and sale and has submitted a license amendment for an additional 110,000 square feet.
By 2020, the facility is expected to achieve an annual production capacity of 50,000 kilograms (110,231 pounds) of hybrid greenhouse medical-grade cannabis.
Meanwhile, WeedMD also has a cannabis oil extraction hub in Aylmer, Ontario that is fully licensed for cultivation, sales, extraction, and processing. The 26,000-square-foot facility is situated on four acres of land and has room for expansion.
Through this facility, the company is able to provide a wide range of onsite services for third parties, such as product development, formulations, manufacturing, research and development, distribution, and warehousing.
WeedMD plans to scale up the Aylmer facility’s annual biomass extraction capacity to 200,000 kilograms (440,925 pounds).
Once a company produces cannabis products, it also needs to sell them. And that’s another reason why WeedMD stock stands out. To sell its medical pot, the company uses a multimodal distribution strategy that includes direct-to-patient sales, Shoppers Drug Mart (the largest retail pharmacy chain in Canada), long-term care facilities, and specialty pharmacies.
As a matter of fact, WeedMD is the first and only licensed Canadian cannabis producer to establish multiple preferred supply agreements with long-term care providers.
Furthermore, the company boasts one of the most comprehensive catalogs of world-class cannabis genetics. Notably, WeedMD is the first licensed marijuana producer in Canada to export cannabis genetics to Israel and Australia.
If you’ve been following the Canadian pot industry, you’ll know that companies are anticipating the legalization of cannabis derivatives in Canada later this year—an era that’s often referred to as “Cannabis 2.0.”
And WeedMD is well prepared for the new era. The company is launching gel capsules under the “WeedMD” brand and pre-rolls and concentrates under the “Color Cannabis” brand this year, and it plans to release edibles, beverages, and topicals in 2020.
WeedMD has also moved into the retail business. The company, along with Pita Pit, partnered with an Ontario cannabis retail license winner to open the first “Pioneer Cannabis” store in Burlington, Ontario. The store, which opened on August 2, was one of the initial 25 cannabis stores in the province.
WeedMD Inc (OTCMKTS:WDDMF) Stock Chart
Chart courtesy of StockCharts.com
Add it all up and you’ll see that WeedMD Inc has a lot going for it: cultivation growth, extraction expansion, new product formats, etc.
Given the expected growth rates in the company’s business, the recent pullback in WeedMD stock could be a good opportunity for investors.