1.42%)
-14.97%)
Back
4 MIN READ
Cannabis stocks continue to rally and with the presidential election right around the corner, we do not expect this trend to end anytime soon.
That being said, we do not recommend diving head first into the industry as the market is nothing like it was in early 2014 when you could just throw a dart at a dartboard and most likely profit off of any cannabis stock it landed on.
2014 Was Just the Beginning
Although cannabis companies saw tremendous growth in early 2014, that was just the beginning. The cannabis industry has improved significantly following a rough two years and we believe there are number of once in a generation type of opportunities available for investors.
From ancillary businesses to licensed producers, investors are poised to benefit off of the continued trend of deregulation.
Many cannabis companies are in their developmental stage and are thus naturally speculative in nature. Although with big risk comes big reward, investors must be selective and do their due diligence before investing.
Focus on Value
When investors ask what we look for in a cannabis company before investing, at a minimum we suggest that investors look into: 1) its management team, 2) its financial structure, 3) the exchange it trades on, 4) its track record, and 5) recent insider activity.
Investors need to be cautious and focus on companies that are well capitalized, led by a management team with a proven track record, have a sound financial structure, act in the best interests of shareholders, and continue to execute on business initiatives.
Four Stocks to Watch
Zynerba Pharmaceuticals (ZYNE)
Zynerba jumped more than 15% yesterday and the share broke out of its previous trading range as ZYNE ended the day at $11.90. The shares are trading right below overbought territory and we consider Zynerba to be one of the top biotech cannabis investment opportunities due to:
1) its product pipeline, which will create catalysts for the shares over the next few years, 2) its attractive size (from a market cap standpoint) as it is a takeout candidate for a larger pharmaceutical company looking to enter the cannabis sector, and 3) its attractive valuation as the shares are down almost 40% in the last twelve months.
Kush Bottles (KSHB)
We have highlighted Kush Bottles a few times during the last month – in that time its shares are up almost 40%. We continue to see further upside to current levels as the rally was supported by the initiation of coverage by Cowen and Company, a Wall Street investment bank. The analyst covering KSHB assigned the shares a Buy rating and a $3 price target because of its unique exposure to the high growth, emerging cannabis industry.
We are favorable on Kush Bottles’ focus on providing exit bag products that are in compliance with regulations. The company offers several child resistant and non-child resistant exit bag solutions, all of which are fully customizable, allowing Kush Bottles’ customers the opportunity to creatively market and brand themselves. We find this aspect of its offering to be extremely important as companies compete to become a recognized brand amongst consumers.
Signal Bay, Inc. (SGBY)
Last week, we highlighted Signal Bay as a stock to avoid as its quarterly financial results did not justify its more than 300% rally. The shares have fallen more than 60% in the last week and we remain on the sidelines with SGBY as the shares try to find a bottom. Although we are favorable on the its leverage to the analytical testing services sub-sector, we are on the sidelines as the share are still up more than 1,000% in the last quarter.
SGBY traded more than 82 million shares yesterday and the shares rallied off of its lows after falling more than 20% early in the trading day. The company’s trading volume has increased significantly over the last week and we continue to cautiously monitor its price and volume from the sidelines.
Aphria Inc. (APH) (APHQF)
Aphria finalized its licensing deal with Tokyo Smoke yesterday and the shares ended the day up 1.2% and 2.6%, respectively. Tokyo Smoke is a premium cannabis-oriented lifestyle brand and they were issued 38,759 common shares and 200,000 common share purchase warrants as part of the deal. The warrants have a five-year term, an exercise price of $3.14, and will be held in escrow and are subject to the achievement of certain sales thresholds.
The market responded favorably to the company’s planned expansion, which was reported last week. The project will increase Aphria’s growing space from 100,000 square feet to 300,000 square feet and is expected to increase its compliant growing capabilities from 5,500 kilograms to 18,000 kilograms on an annual basis. We continue to view Aphria as one of the top investment opportunities in the cannabis sector as its management team continues to execute and position the business for continued growth and success.
All good -- no spamming here.
Get the Latest Cannabis News & Stock Picks.
Comments