3 Little-Known Cannabis Stocks To Buy Right Now
NewLake Capital Partners (OTC: NLCP), Village Farms International (NASDAQ: VFF) and Hydrofarm Holdings Group (NASDAQ: HYFM) aren’t as well-known as many other cannabis companies, but all three small-cap stocks have significant growth potential. They are also less exposed to the vagaries of marijuana prices or sales.
NewLake is a real estate investment trust that leases growing facilities, processing facilities, and dispensaries to cannabis companies. Village Farms International is one of the largest greenhouse producers in North America and its subsidiary, Pure Sunfarms, is one of the largest cannabis-related operations in the world. Hydrofarm Holdings sells a line of controlled growth products that can be used for many crops, including marijuana.
Image source: Getty Images.
NewLake Capital Partners lives up to its name
NewLake Capital Partners made its initial public offering on August 20 and has just started trading over-the-counter. The REIT focuses on providing capital through leases to cannabis companies, following the same successful path traced by Innovative industrial properties.
Due to federal regulations, cannabis companies have difficulty obtaining bank financing, so NewLake buys their properties and re-leases them with triple net leases that weigh in on expenses such as property taxes, insurance, maintenance. and utilities on tenants and include the annual rent increase. clauses based on an inflation index. The setup frees up capital for the cannabis companies and provides a constant revenue stream for NewLake.
The stock was trading at around $ 30 on Friday, a bit higher than its IPO price of $ 26 per share. It was only founded two years ago, but the company already has big names like Curaleaf Holdings, Cresco Laboratories, Trulieve Cannabis, and Columbia Care. As of June 30, the company owned 27 properties which it said were 100% leased.
Since then, the company has shown that it plans to expand. In July, she invested up to $ 20.5 million to purchase land and build a 130,757 square foot grow and process facility in Phoenix to be leased by Tempe, Ariz.-Based cannabis company Mint. . This month, Massachusetts’ Worchester Business Journal said the company spent $ 8.8 million on four properties in Fitchburg, Massachusetts, which were co-owned by medical cannabis company Revolutionary Growers and Anwelt Heritage Condominiums.
Another big advantage is that the business is debt free, at least for now; after the IPO, management claims to have more than $ 300 million to invest.
Village Farms International is making great strides
Village Farms International shares are down just over 4% for the year. Looking at its one-year futures price-to-sell ratio of 2.36, the stock is turning into a bargain. The company just bought Balanced Health Botanicals, a Colorado-based CBD company, for $ 75 million. (CBD, or cannabidiol, is a non-psychoactive component of marijuana.) This is just the latest move for the greenhouse grower to tie them more tightly to cannabis. Its subsidiary, Pure Sunfarms, which the company claims is Ontario’s top-selling licensed producer of dried cannabis flowers, is driving Village Farms’ revenue growth.
In the second quarter, the company reported $ 70.37 million in revenue, up 47.9% year-over-year, in part on revenue of $ 24.7 million from Pure Sunfarms, up 136% year over year. This was the fourth consecutive quarter in which the company recorded growth in retail brand sales and the 11th consecutive quarter of positive growth earnings before interest, taxes, depreciation and amortization, or EBITDA, for Pure Sunfarms.
However, the company’s buying frenzy came at a cost; it lost $ 4.5 million in the quarter, up sharply from a loss of $ 119,000 during the same period in 2020.
A key aspect of Village Farms is its potential in the United States. The company’s subsidiary, Pure Sunfarms, sells its cannabis strictly in Canada. However, Village Farms sells CBD products in the United States, positioning itself to pursue what it calls “high THC cannabis opportunities” in the United States (THC, or tetrahydrocannabinol, being the component. psychoactive marijuana) as soon as it is legally permitted. do this.
Hydrofarm Holdings engulfs companies
Hydrofarm Holdings share is down 8% over the year. The company’s connection to cannabis is that its controlled environment equipment is particularly useful for marijuana, but its hydroponic products are used for a multitude of crops.
Hydrofarm has built its business through mergers and acquisitions, and in its second quarter earnings call, management said it intended to continue to look for ways to grow the business through the through merger and acquisition activity. His biggest recent move was his purchase of Greenstar Plant Products, a plant nutrient company, for $ 83 million earlier this month. This follows the purchase of three Oregon hydroponics companies under the Aurora Innovation banner and the purchase of nutrient makers Heavy 16, House & Garden and Mad Farmer, all since April. The company announced its intention to open two new distribution centers this quarter; combined with the aforementioned purchases, its distribution center and manufacturing footprint is expected to grow by 70%.
Hydrofarm just had a strong second quarter in which it reported sales of $ 133.8 million, up 46.7% year-over-year; gross margin of 22.1% of net sales, compared to 19.6% a year ago; and net income of $ 2.3 million, compared to $ 1.9 million in the same period in 2020. Including acquisitions, management said it expects net sales to be up by 45% to 50% compared to last year.
VFF Revenue Data (TTM) by YCharts
Sift the marijuana leaves to determine the correct stock
These three marijuana companies have enormous potential, in part because they are not yet widely known and their shares have not yet skyrocketed.
While I am excited about the possibilities of NewLake Capital Partners, there is simply not enough track record for me to choose it over the other two companies.
It’s not an easy choice between the other two as both have seen their incomes soar by over 25% this year. Right now, I like Hydrofarm Holdings because it’s already profitable and making bigger moves. However, Village Farms, with its 9 million square feet of indoor grow space, could certainly become a huge factor in the cannabis and CBD industry, so it’s a great game in the long run.
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Jim Halley owns shares of Innovative Industrial Properties. The Motley Fool owns stock and recommends Cresco Labs Inc., Innovative Industrial Properties, Trulieve Cannabis Corp., Village Farms International Inc and Village Farms International, Inc. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.