3 of the Best Cannabis Stocks in 1st Half of 2019
The broader markets continue to trade near record levels, and investors couldn’t be happier, even if earnings don’t quite match up with nosebleed valuations. During the first half of 2019, the S&P 500 advanced a respectable 18.7%. Solid, yes, but it’s still the cannabis stocks that capture investor attention.
The ETFMG Alternative Harvest ETF (NYSEARCA:MJ) increased 29.2% in the first six months of 2019, while the Horizons Marijuana Life Sciences Index ETF (OTCMKTS:HMLSF, TSE:HMMJ) was up 32.2%.
More specifically, three of the best cannabis stocks in the first half of 2019—Village Farms International Inc (NASDAQ:VFF, TSE:VFF), MediPharm Labs Corp (OTCMKTS:MEDIF, CVE:LABS), and Innovative Industrial Properties Inc (NYSE:IIPR)—averaged gains of 252.6%.
This does not mean that these three top cannabis stocks will necessarily repeat triple-digit gains in the second half of 2019, but it does suggest that great momentum could send them significantly higher over the next six months.
Village Farms International Stock up 354%
Village Farms International is known for being one of the largest producers of greenhouse tomatoes, bell peppers, and cucumbers in North America. But it’s the company’s cannabis operations that have really put it on the map.
The company, based in Delta, British Columbia, Canada, is now one of the largest seed-to-sale cannabis producers anywhere. Transitioning to cannabis helped VFF stock soar 354% in the first half of 2019.
Village Farms owns and operates seven greenhouses in British Columbia and Texas.
Through Pure Sunfarms Corporation, its 50/50 joint venture with Emerald Health Therapeutics Inc (OTCMKTS:EMHTF, CVE:EMH), Village Farms has a conservative, targeted annual production of 150,000 kilograms (330,693 pounds) of cannabis at its 2.2-million-square foot greenhouse facilities. (Source: “Investor Presentation June 2019,” Village Farms International, last accessed July 3, 2019.)
It has plenty of room to expand though. Village Farms has 5.7 million square feet of greenhouse space in Texas that it could switch to hemp. This seems like a no-brainer now that Texas has legalized the production of hemp containing less than 0.3% of tetrahydrocannabinol (THC).
The company has already begun converting half of its 1.3-million-square-foot Permian Basin greenhouse in West Texas for the cultivation of CBD hemp and extraction. It will be applying for hemp cultivation and processing licenses as soon as it is legally able to.
In May, Village Farms announced the expansion of its outdoor hemp cultivation and CBD extraction program to Colorado. The joint venture, Arkansas Valley Green and Gold Hemp LLC, will be 60% owned by Village Farms, 35% owned by Arkansas Valley Hemp, LLC, and five percent owned by Village Fields Hemp, which itself is 65% owned by Village Farms. (Source: “Village Farms International Expands U.S. Outdoor Hemp Cultivation and CBD Extraction Program to Colorado Through New Joint Venture, Arkansas Valley Green and Gold Hemp,” Village Farms International, May 21, 2019.)
Arkansas Valley Green and Gold Hemp expects to plant hemp seeds on 120 acres in the Arkansas Valley in 2019. This will increase Village Farms’ total hemp production for its two joint ventures to 920 acres. By 2020, Arkansas Valley Green and Gold Hemp is hoping to expand production to 500 acres.
Village Farms is also exploring additional hemp opportunities in Mexico and Latin America.
Pure Sunfarms Achieves 2nd Consecutive Quarter of Profitability
On May 9, Village Farms International announced that its first-quarter revenue for the period ended March 31 had increased 26.4% year-over-year to $37.3 million. (Source: “Village Farms International Reports First Quarter 2019 Results – Canadian Cannabis Joint Venture, Pure Sunfarms, Achieves Second Consecutive Quarter of Profitability,” Village Farms International, May 9, 2019.)
First-quarter net income was $7.6 million, or $0.15 per share, versus a loss of $1.1 million, or $0.03 per share, in the same period in the prior year.
Village Farms’ Pure Sunfarms joint venture reported first-quarter sales of $10.8 million (before Village Farms’ 50% cut), resulting in net income of $8.6 million (also before Village Farms’ 50% cut).
Pure Sunfarms expects to double its annual production to 330,693 pounds by 2021.
|VFF Stock Information|
|Market Cap||$525.2 Million|
|Shares Outstanding:||49.1 Million|
|50-Day Moving Average:||$12.51|
|200-Day Moving Average:||$12.74|
(Source: “Village Farms International, Inc. (VFF),” Yahoo! Finance, last accessed July 3, 2019.)
MediPharm Labs Corp Stock up 227%
MediPharm Labs produces and sells pharmaceutical-grade cannabis oil and concentrates for advanced derivatives products in both Canada and Australia. (Source: “Investor Presentation,” MediPharm Labs, June 2019.)
MEDIF stock entered 2019 trading at $1.21 and closed out the last day of June at $3.96, for a year-to-date gain of 227%.
At the company’s 70,000-square-foot facility in Barrie, Ontario, Canada it can process 150,000 kilograms (330,693 pounds) of dried cannabis flower, or trim, annually. This makes MediPharm the largest licensed extraction-only cannabis provider in Canada.
The company’s fully funded expansion, which was expected to be completed in the second quarter of 2019, will increase its processing capacity to 250,000 kilograms (551,155 pounds) per year.
MediPharm currently has sales agreements with four licensed producers, long-term cannabis concentrate agreements with five companies (and ongoing negotiations with several other licensed producers), and supply agreements to process dried cannabis from 12 licensed producers.
Its subsidiary, MediPharm Labs Australia Pty. Ltd, will complete construction on its 10,000-square-foot facility, with a capacity of 75,000 kilograms (165,346 pounds) in the second half of 2019.
MediPharm has completed its application with Australia’s Office of Drug Control to extract and import medical cannabis from its facility in Wonthaggi, Australia. Licensing is expected in the second half of 2019.
Q1 Revenue up 115%, Adjusted EBITDA of $4.3 Million
On May 10, MediPharm announced that its first-quarter revenue, for the period ended March 31, had increased 115% sequentially to $22.0 million. The company didn’t report any revenue in the first quarter of 2018. (Source: “MediPharm Labs Announces Q1 2019 Revenue of $22 Million and Adjusted EBITDA of $4.3 Million,” MediPharm Labs, May 10, 2019.)
MediPharm reported a first-quarter loss of $573,000, compared to a loss of $3.5 million in the first quarter of 2018.
Its first-quarter 2019 adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was $4.3 million, a 102% increase from the $2.1 million recorded in the fourth quarter of 2018.
“As a differentiated cannabis company, we achieved strong first quarter results and set the pace for continued robust growth, marking our position among top-tier Canadian cannabis companies,” said Patrick McCutcheon, CEO.
Cannabis-infused products, like edibles, topicals, and vapeables, will legally hit Canadian shelves sometime in December.
To meet the strong demand for its private-label offerings, MediPharm acquired more than 5,000 kilograms (11,025 pounds) of dried cannabis in the last two weeks of the first quarter.
Over the closing weeks of June, the company acquired an additional 9,000 kilograms (19,841 pounds) of dried cannabis.
All this should help MediPharm accelerate growth.
|MEDIF Stock Information|
|Market Cap||$485.0 Million|
|Shares Outstanding:||105.3 Million|
|50-Day Moving Average:||$4.27|
|200-Day Moving Average:||$3.98|
(Source: “MediPharm Labs Corp. (MEDIF),” Yahoo! Finance, last accessed July 3, 2019.)
Innovative Industrial Stock up 177%
Innovative Industrial Properties counts some of the cannabis industry’s biggest names as its tenants.
The San Diego-based company buys lands from licensed medical-use cannabis companies and leases it back to them. (Source: “Our Business,” Innovative Industrial Properties Inc, last accessed July 4, 2019.)
This provides the cannabis companies with fresh cash they can use to help further develop their operations.
IIPR stock was bullish over the first six months of 2019, rising 177% from $44.50 on January 2 and closing at $123.56 at the end of June. By all accounts, this momentum should continue into the second half of 2019 and into 2020.
After acquiring well-funded cannabis companies in the $5.0 million to $30.0 million range, it signs them up for long-term leases in the 10- to 20-year range.
The inflation-busting strategy includes raising the annual rent by three percent to 4.5%. (Source: “Sale/Leaseback Opportunities,” Innovative Industrial Properties Inc, last accessed July 3, 2019.)
IIPR currently has a portfolio of 22 properties, located in Arizona, California, Colorado, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New York, Ohio, and Pennsylvania. (Source: “Innovative Industrial Properties Acquires Michigan Property and Enters Into Long-Term Lease with Emerald Growth Partners,” Innovative Industrial Properties Inc, June 21, 2019.)
All 100% of the 1.7 million square feet of rentable space has been leased.
In June, Innovative Industrial Properties declared a second-quarter dividend of $0.60 per share, for an annualized dividend of $2.40 per share. This represents a 140% increase from the $0.25 that IIPR paid out in the second quarter of 2018 and an 33% increase from the $0.45 per share declared in the first quarter. (Source: “Innovative Industrial Properties Declares Second Quarter 2019 Dividends,” Innovative Industrial Properties, Inc., June 14, 2019.)
Q1 Rental Revenue up 146%, Net Income of $3.3 Million
In May, Innovative Industrial Properties announced that its first-quarter rental revenue, for the period ended March 31, grew 146% year-over-year to $6.6 million. (Source: “Innovative Industrial Properties Reports First Quarter 2019 Results,” Innovative Industrial Properties Inc, May 8, 2019.)
Net income advanced 444% to $3.3 million, or $0.09 per share.
Adjusted funds from operations (AFFO) increased 275% year-over-year to $5.3 million, or $0.54 per share. AFFO is a non-generally accepted accounting principles (GAAP) measure that is used in the real estate industry to measure and compare the operating performance of real estate companies.
|IIPR Stock Information|
|Market Cap||$1.2 Billion|
|Shares Outstanding:||9.8 Million|
|50-Day Moving Average:||$101.28|
|200-Day Moving Average:||$78.08|
(Source: “Innovative Industrial Properties, Inc. (IIPR),” Yahoo! Finance, last accessed July 3, 2019.)
The legal cannabis industry is still in its infancy. Canada only legalized recreational marijuana in October 2018. In the U.S., recreational cannabis is legal in 11 states (and counting). It’s just a matter of time before it is legalized at the federal level.
As a result, the lucrative cannabis industry will continue to be under the investing spotlight. Once recreational cannabis is legal in all 50 states, U.S.-listed marijuana stocks will really take off.
The biggest and best cannabis stocks will be those that are already well established. The three cannabis stocks discussed above were some of the biggest winners in the first half of 2019. If things go the right way, they might be able to replicate that success in the second half of the year.
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