A Bird’s Eye View Globally and Sneak Peek into Profitable UK Cannabis Plays

A Bird’s Eye View Globally and Sneak Peek into Profitable UK Cannabis Plays

Cannabis is presently one of the most happening sectors, regularly witnessing heightened activity either from the regulatory front or from the broader market. Use of Cannabis does not affect the functionality of the human brain, rather as per recent medical data, it helps in keeping body fit.

United States Food and Drug Administration (FDA) and its proactiveness towards cannabis

The United States, federal agency -The Food and Drug Administration (FDA or USFDA)- announced on Monday that it is expediting its effort to create a regulatory framework for cannabidiol (CBD).  The agency plans to publish a report on its progress by early fall.

Currently, the regulatory bottleneck over CBD is regarding one of its components Epidiolex. Epidiolex’ primary use is as a medicine component for epilepsy disease. Due to this reason, there is regulatory pressure for further testing. As per some market experts estimates, the worldwide market for CBD is expected to grow with a compounded annual growth rate of 33 per cent during the period 2019 to 2026 to cross USD 22 billion in 2026.

Current Scenario of the industry

Cannabis sector as of now is under extensive investor scanner given its sharp rise since it got legalized in the United Kingdom at the end of October 2018. Across the Atlantic, both Canada and the United States are also moving forward with authorized use of cannabis with varying rate towards more and more acceptance in both medical and non-medical spheres.

However, as of now, media reports are full of stories of losses, and missed forecast from cannabis plays round the globe. For example, on Monday a leading Canadian licensed producer of cannabis products, Organigram Holdings Inc. reported a disappointing quarterly number in the red. Management of the company attributed the dismal performance to the lower number of retail outlets and the company’s failed experiment over planting new harvest. Another cannabis play, CannTrust Holdings Inc. is facing the wrath of the stock market after the seizure of its illegal cannabis stock by the government.

Market judges the cannabis companies by their long-term positioning rather than near-term fundamentals, so savvy investors can still profit from cannabis space. Let’s have a look at the recent performance of three stocks outside the United Kingdom to have a feel what’s brewing in the cannabis space globally.

Trulieve Cannabis Corporation

The first name that crops to mind is the Canadian vertically integrated cannabis company, Trulieve Cannabis Corporation. The company has a presence across the entire value chain of the cannabis business, from the cultivation of the crop to retail sales. In the state of Florida, United States, the company is the biggest fully licensed medical cannabis outfit. The stock is listed at the Canadian Securities Exchange with the symbol TRUL. As of now, the company has a chain of retail outlets all over the state of Florida. It has also been expanding to other areas in the United States like Massachusetts, California, and Connecticut.

Recent Developments

July 15, 2019

Trulieve Cannabis Corporation announced a new member in its Board with the appointment of Peter T. Healy as a Director.

July 11, 2019

Trulieve Cannabis Corporation’s promoters entered into a voluntary lock-up agreement concerning 65,253,093 shares, which constitute 59.25% of the subordinate voting shares of the company. Till July 25, 2020, the deal would remain valid.

Financial Highlights (Q1 FY 2019, USD million)

Total revenue for the quarter ended 31 March 2019 increased by 192 per cent to USD 44.5 million as compared to the same quarter last year, driven by higher sales. The company’s gross profit stood at USD 29.9 million in Q1 FY 2019 as compared to USD 10.6 million in Q1 FY 2018. Trulieve’s operating expenses surged to USD 11.9 million, an increase of 155% year over year. However, at the same time, operating expenses as a proportion to revenue decreased to 27% versus 31% in the year-ago period. It reflects a 400bps improvement in operating margin. Adjusted EBITDA increased to USD 19.0 million in Q1 FY19 versus USD 6.1 million in Q1 FY18, reflecting more than two-fold improvement.

Organigram Holdings Inc.

Organigram Holdings Inc. operates through its fully owned subsidiary Organigram Inc. The subsidiary is a licensed manufacturer of cannabis oil and dried cannabis

Financial Highlights (Q3 FY 2019, USD)

(Source: Quarterly Report, Company Website)

Net revenue for the quarter increased more than a six-fold year over year to USD 24.8 million, due to strong sales. The company’s gross margin before non-cash fair value changes also improved more than a six-fold year over year to USD 12.3 million. Overall in the reported quarter, gross loss after non- cash fair value changes came in at USD 0.2 million. The downside was due to the write-off of biological assets and inventory. Total Net Loss came in at USD 10.2 million versus Net Income of USD 2.8 million in the year-ago period. The company’s basic Loss per share came in at USD 0.068 versus Earnings per share of USD 0.033 in the year-ago quarter. The company’s Diluted Loss per share stood at USD 0.068 from Earnings per share of USD 0.030 in the year-ago quarter.

Recent Developments: July 10, 2019

Organigram Holdings Inc. declared that it has agreed with Lift & Co. Corporation. As per the agreement, Organigram Holdings Inc. would participate in the CannSell retail training program. The program is an educational program related to cannabis.

Innovative Industrial Properties Inc.

Innovative Industrial Properties, Inc. is a real estate company listed on the New York Stock Exchange focused on the regulated United States cannabis industry.

Recent Developments

July 12, 2019

Innovative Industrial Properties Inc. priced an offering of its common stock. The offering consists of 1.3 million shares priced at USD 126 per share.

July 09, 2019

Innovative Industrial Properties Inc. acquired an industrial property in Lansing, Michigan, for approximately $4.8 million.

Financial Highlights (Q2 FY 2019, USD)

(Source: Quarterly Report, Company Website)

Total revenue for the Q2FY19 increased by 146.9% year over year to USD 6.8 million. In the reported quarter, of the total revenues, Rental constituted 96.4 per cent of revenues. The rest (3.6 per cent) came from Tenant reimbursements. Income from operations came in at USD 3.4 million in the reported quarter versus USD 0.7 million in the year-ago quarter. Net Income in the Q2FY19 came in at USD 3.6 million versus USD 0.9 million in the year-ago quarter. The company’s basic EPS came in at USD 0.34 versus EPS of USD 0.10 in the year-ago quarter. The company’s Diluted EPS stood at USD 0.33 from EPS of USD 0.09 in the Q2FY18.

Cannabis Play in United Kingdom Perspective

In the United Kingdom, the sector is still in its nascent stage, given its medical applications getting governmental approval only in late 2018. However, for a keen investor, the industry throws up quite a bit of name.

Sativa Group PLC

United Kingdom’s first listed cannabis investment vehicle, Sativa Group PLC. The company invests in cannabidiol and medicinal cannabis products in the United Kingdom. Earlier investment bets consist of Rapid Dose Therapeutics and Veritas Pharma Inc. in Canada. Apart from the United Kingdom, the company is making inroads in Germany also. At Germany, it’s sixty per cent owned subsidiary is slated to receive a governmental nod for wholesale and import license. It would help the company to dispense cannabis products in Germany.

Share Price Performance

Daily Chart as at July-17-19, before the market closed (Source: Thomson Reuters)

On July 17, 2019, at the time of writing (before the market closed), Sativa Group PLC shares were trading at GBX 5.015, down by 5.4 per cent against the previous day closing price. Stock’s 52 weeks High and Low is GBX 15.75/GBX 3.00. Stock’s average traded volume for 5 days was 457,535.00; and 30 days – 434,267.30. The average traded volume for five days was up by 5.4 per cent as compared to 30 days average traded volume. The outstanding market capitalisation was around GBP 28.22 million.

Associated British Foods

A United Kingdom-based diversified company which caught our fancy as it delves into the medicinal cannabis space through its subsidiary, British Sugar. Our bullishness for the company is due to the rising demand for the Epidiolex medicine of GW Pharmaceuticals. It is because British Sugar grows the cannabis crop intended for the manufacture of Epidiolex medicament of GW Pharmaceuticals.

Share Price Performance

Daily Chart as at July-17-19, before the market closed (Source: Thomson Reuters)

On July 17, 2019, at the time of writing (before the market closed), Associated British Foods shares were trading at GBX 2,306.00, down by 0.30 per cent against the previous day closing price. Stock’s 52 weeks High and Low is GBX 2,659.00/GBX 2,011.00. Stock’s average traded volume for 5 days was 693,910.60; and 30 days – 797,825.13. The average traded volume for five days was down by 13.0 per cent as compared to 30 days average traded volume. The outstanding market capitalisation was around GBP 18.48 billion.

Ananda Developments Plc

Ananda Developments is listed on the Junior Nex market in the United Kingdom. The company develops cannabis-based medicinal products.

Share Price Performance

Daily Chart as at July-17-19, before the market closed (Source: Thomson Reuters)

On July 17, 2019, at the time of writing (before the market closed), Ananda Developments shares were trading at GBX 0.290 and remained flat against the previous day closing price. Stock’s 52 weeks High and Low is GBX 0.75/GBX 0.24. Stock’s average traded volume for 5 days was 431,635.20; and 30 days – 945,229.50. The average traded volume for five days was down by 54.3 per cent as compared to 30 days average traded volume. The outstanding market capitalisation was around GBP 1.22 million.

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