2 Attractive Small-Cap Marijuana Stocks to Watch
Cannabis stocks have been severely beaten in the past few months. While the general sentiment is negative, there are still good values to be found in the marijuana sector. The Valens Company (TSXV:VLNS) and MediPharm Labs (TSX:LABS) are two small-cap stocks that are showing strong growth and are still cheap.
The Valens Company
Valens is the third-largest Canadian extraction company with 425,000 kilograms of annual extraction capacity of dried cannabis and hemp biomass. Valens is one of the few profitable cannabis companies and runs a very high-margin business.
The cannabis company has signed extraction agreements with Organigram, Tilray, Canopy Growth, and HEXO. Valens also has a strategic partnership with Thermo Fisher Scientific, one of the world’s leading manufacturers of laboratory equipment, in addition to ISO 17025 laboratory accreditation, allowing the company to perform standardized tests for over 400 metals, pesticides, terpenes, residual solvents, microbial and cannabinoids.
On October 15, 2019, Valens announced solid financial results for Q3 2019, highlighted by revenue of $16.5 million, adjusted EBITDA of $9.8 million and net profit of $5.9 million.
For the fourth quarter of 2019, Valens forecasts revenue of between $27 million and $30 million, almost double the revenue published for the third quarter of 2019 and resulting in estimated annual revenue of between $55 million and $58 million for 2019.
Valens is expected to continue increasing revenues quarter over quarter as it moves from basic extraction to sales of higher-value distillate and white-label products. Its earnings per share are expected to grow by 126.3% to $0.05 for fiscal 2019. Valens shares are cheap, with a forward P/E of 10.2.
MediPharm Labs
MediPharm Labs is the first company in Canada under the ACMPR without first receiving a cultivation license to become an authorized producer for the production of cannabis oil. MediPharm produces purified pharmaceutical oils and cannabis concentrates through its cGMP and ISO cleanroom laboratory.
The company currently has a 70,000 square foot facility with a capacity of 300,000 kilograms. MediPharm has invested in advanced extraction technology and methods to provide safe and precisely measured cannabis products to consumers and patients.
In May 2019, MediPharm signed a multi-year supply agreement with Cronos Group. It is expected that MediPharm will supply Cronos with approximately $30 million of cannabis concentrate over 18 months and potentially up to $60 million over 24 months.
In September, MediPharm entered into another manufacturing agreement with Cronos for the filling and packaging of vaporizer devices. The initial term of the agreement is two years with an option to renew, but the size of the contract hasn’t been disclosed.
In the third quarter of 2019, MediPharm sales amounted to $43.4 million, an increase of 38% compared to Q2 2019, as the company increased its leadership in the Canadian cannabis extraction industry.
Net income before taxes amounted to $5.4 million, compared to net income before taxes of $4.1 million in Q2 2019.
This quarter marked MediPharm’s fourth consecutive quarter of positive adjusted EBITDA and revenue growth. For fiscal 2019, EPS are estimated to increase by 180% to $0.04 per share. MediPharm shares have a low forward P/E of 26.8.
On January 31, MediPharm announced the receipt of a key import license for its Australian business. This license is a critical step in the construction of the company’s international supply chain, which will be used to create additional synergies between the Canadian and Australian operations of MediPharm.
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Fool contributor Stephanie Bedard-Chateauneuf owns shares of Cronos Group. The Motley Fool owns shares of and recommends OrganiGram Holdings. The Motley Fool owns shares of Valens GroWorks. The Motley Fool recommends HEXO and OrganiGram Holdings.
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