Analyzing Some Exciting But Unknown Marijuana Stocks

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Includes: ACB, APHA, CADMF, CBIS, CGC, CRON, CURLF, EDXC, HEMP, MJARF, MJNA, NWKRF, TCNNF, TLRY
by: StockBaller
Summary

The growth of the marijuana industry looks likely to continue.

There are numerous lesser-known OTCBB and Pink Sheet-traded marijuana-related stocks that investors have largely ignored.

These stocks - while representing large risk - are worth investigating for their upside potential.

The marijuana sector of the stock market has been a wild one. I first became interested in this segment in 2013, when in the midst of a growing optimism in the future of the legalised marijuana industry, we saw a huge bull run in every listed marijuana-related stock (see 5 Marijuana Stocks Going Crazy and Marijuana Stocks: The Madness Is Back). Since then, the progression of the legal marijuana industry has only continued: ten states in the US now allow adults to consume cannabis, with nine approving the retail sale of the drug, and the rather common sense viewpoint that many existing laws and punishments regarding the recreational use of marijuana were unjustly-harsh has continued to grow sympathy. In this new climate, I believe it is more or less inevitable that the trend of more states continuing to legalise marijuana will continue, and with it, the demand for marijuana-related products. That view is clearly well-received. One report from Arcview Market Research even estimates a projected growth in legal cannabis spending of 38% to $16.9 billion in 2019, going on to reach $31.3 billion in 2022.

Many are already familiar with the main marijuana-related stocks that aim to capitalise on this potentially massive industry and are traded on major stock exchanges including Canopy Growth Corp. (CGC), Aurora Cannabis (ACB), Tilray (TLRY), Aphria (APHA), and Cronos Group (CRON). There are also a number of marijuana-related stocks that have a long history of trading on the lesser OTCBB or Pink Sheet exchanges such as Medical Marijuana (OTCPK:MJNA), Hemp Inc. (OTCPK:HEMP), and Cannabis Science (OTCPK:CBIS). As those are (or at least were) reasonably well-known and covered by many analysts, I will not go over them here. Rather, I am interested in the many marijuana-related stocks traded on the OTCBB and Pink Sheet exchanges that have only fairly recently hit the market and appear to have gone largely unnoticed, yet continue to slowly grind up and make new developments.

Please note that the following stocks do not have comparable assets or business operations to most of the marijuana-related stocks traded on larger exchanges and, normally, do not have their earnings or financial statements audited. As such, they represent major risks. One should be extremely careful in investing in them, and be aware that they could go out of business any time.

Chemesis International Inc. (OTCQB:CADMF)

Chemesis International is a Canadian-based company that cultivates, manufactures, distributes, and retails cannabis products in California, Puerto Rico, and Colombia. First being listed on the OCTBB in late November 2017, the company reported unaudited results of revenue of about $2.8 million CDN (around $2.1 million USD) for the quarter ending December 31, 2018, representing a 47% increase from the previous quarter. The exact breakdown of that revenue is not clear, but at least, part of it is from the company's "Desert Zen" facility which offers distribution and transportation services, as well as its so called Jay & Silent Bob brand. Outside of the US market, CADMF will presumably also be much more active in Puerto Rico in future as their subsidiary, Natural Ventures, had signed a purchase order for a minimum of $4 million annually (though it is odd that the company or vendor they are doing business with is not actually revealed).

CBD Unlimited (OTCPK:EDXC)

CBD Unlimited was previously known as ENDEXX and traded under that name for over a decade as a micro-cap stock with what appears to be very little business activities, before switching names in November 2018 to fully target the cannabis industry. That is a somewhat suspicious move, and since then, EDXC stock has crawled up on low volume from around $0.05 to a current price of around $0.45. Under their new business name, EDXC has been in the business of using CBD (formally Cannabidiol, a naturally occurring compound found in the resinous flower of cannabis) to develop and distribute various oils and capsules, as well as soft chews for dogs. In their most recent quarterly earnings, EDXC announced just $236,000 in sales, and there do not appear to be any major catalysts to explain their rise in 2019.

MJardin Group Inc. (OTCQX:MJARF)

MJardin Group has a limited but rather unsuccessful history so far, being listed on November 2018 at around $6 and now trading at just below $1. That is in spite of what would appear (at least at face value) reasonably strong full year 2018 financial results, where they reported revenue of $27.5 million (up 37% year over year). Rather than selling marijuana-related products directly to customers, MJardin Group offers turnkey management services for cannabis operators, including cultivation, processing, and retail. It has been argued that that's a significantly less attractive business. However, given how far MJARF has fallen, it is worth looking into as a (highly speculative) potential investment.

Curaleaf Holdings Inc. (OTCPK:CURLF)

Curaleaf Holdings, like MJARF, was listed in November 2018 and operates as an integrated medical and wellness cannabis operator - their products include not just edibles but flower pods, topical lotions, pre-rolls and more. As of April 30, 2019, the company operated in 44 dispensaries in 12 states. Their full year 2018 financial results state total reported managed revenue of $87.8 million, compared to only $28.4 million in 2017, though net loss for the full year 2018 was a rather large $61.8 million. MJARF reports having $266.6 million in cash at the end of 2018 (that is after raising $380 million through a private placement offering), which should allow it to easily continue business for the foreseeable future. This is clearly a much more substantial company than most OTCBB or Pink Sheet-listed marijuana-related stocks, and it has performed well in 2019, but one must be wary of the large net losses present.

Newstrike Brands Ltd (OTCPK:NWKRF)

Newstrike Brands sells medical marijuana in Canada, under the Up Cannabis brand name. In its year end 2018 results, the company reported revenues in excess of $5.3 million, with a net loss of $6.5 million, and cash and cash equivalents of $96.6 million. Like CURLF, this represents a company with plenty of liquidity to continue in business for the foreseeable future and reasonable revenue, but at significant net losses (in this case, on a smaller scale to CURLF). Of interest is that compared to CURLF, NWKRF's gains in 2019 have been much more modest, representing potentially more upside. There is, of course, also potential in future for the company to enter the US market similarly to how it has done in Canada.

Trulieve Cannabis Corp. (OTCPK:TCNNF)

Trulieve Cannabis, first listed in late September 2018, operates as a medical marijuana company mainly in Florida, distributing its products via Trulieve branded stores as well as directly to patients through home delivery. In its fourth quarter and full year results for 2018, it reported revenue in the fourth quarter of $35.9 million, and even a positive net income of $10.7 million. If those financials are to be trusted (it is not mentioned if the statements are unaudited as is usually the case with OTCBB stocks), it is definitely one of the strongest marijuana-related stocks on the market. TCNNF even makes extremely bullish revenue predictions in future, predicting revenue growth of 108% for the full year 2019. Despite that, however, the stock has not performed well in the month since that earnings release, and the reason for that is rather unclear.

A Final Warning

Being listed on the OTCBB and Pink Sheet exchanges, every one of the above stocks may be considered a risky investment, and investors looking for stability should look elsewhere. It is uncertain both where the marijuana industry is headed as well as whether each one of the aforementioned stocks will be able to continue in the long term. On the other hand, they represent useful opportunities for those bullish on the long-term potential of the marijuana industry, as they have enormous room to grow compared to larger cap stocks traded on the NASDAQ and NYSE.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.