WeedMD – The Smart-Money’s 2018 Marijuana Play
Given Canada’s impending summer decriminalization, we’ve kept close watch over a number of cannabis producers into 2018. The maple nation’s 104 licensed growers have been preparing for the explosion in demand that the recreational market is expected to ignite; enormous expansion projects are underway, creating hordes of new jobs and, of course, attracting massive investment.
Thanks to the usual flood of speculators, the larger cannabis stocks have been a total no-go for over a year. Major shares have seen growth of 1-2,000% since the beginning of 2016, making a post-launch reality-check more likely; WeedMD Inc. (TSXV: WMD), however, has flown largely under the radar with a modest 244% growth, even though the company has been a licensed grower for over two years.
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So why do we expect it to perform this year? Primarily, Canada’s policy of favouring a relatively small number of industrial-scale growers will keep the supply-side in control of the burgeoning industry. Practically any company with a license that includes cultivation and distribution of both dry herb and extracts, a little sense, and enough cash to survive early-doors will be able to source customers.
In other words, all full license holders make good short term investments, but some are already in boom, and so the smaller hopefuls are the best bet this late in the game. Furthermore, we’re looking for a company that is spending big and can afford to do so. The company currently has one functional grow operation, but is expanding capacity by an order of magnitude this year alone, with further new grow-sites already planned.
All growers have dramatically increased spending in advance of the launch, pushing marketing budgets and staff levels to presently unsustainable levels. A key consideration is whether these companies have the cash on-hand to fund these larger operations without cash flow and before the anticipated (delayed) multi-billion dollar recreational market comes into force. With $48 million in the bank, an existing medicinal customer base and zero debt, however, WeedMD will have no issues keeping its doors open, lights on and staff paid.
Additionally, the majority of licenses have been granted relatively recently, meaning lots of newbies will be growing your plants. WeedMD’s product will have been in development in the current 26,000 sq ft site in Aylmer, Ontario, for much longer than most smaller competitors, however, and the company is awaiting a cultivation license for its colossal 610,000 sq ft new greenhouse facility in Strathroy, Ontario.
More recently, through its merger with Hiku Brands, WeedMD has become a vertically integrated cannabis house with a growing network of retail stores, an expanding medical business and four scalable production facilities, two of which are already licensed. This is what makes this company a great long-term investment option – good experience, enough cash, large potential capacity, permits in-hand and a strong and established brand with good retail clout.
Right now, WeedMD is increasingly loss-making, which may put some investors off. However, this is entirely due to the run-up to decriminalization necessitating additional spending. The company would simply not survive the launch if it behaved overly-frugal at this time. All things considered, we expect the company to rise quickly, anyone late to the cannabis party should consider WeedMD as a potential outperformer in 2018.