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Investors Should Be Looking For Companies With Strong Balance Sheets During These Uncertain Times

May 4, 2020 • 7:53 AM EDT
5 MIN READ  •  By Michael Berger
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2020 has been a tough year for the global economy and the cannabis sector has been not been immune to COVID-19.

Now that earnings season is kicking into high gear, the market will be able to see how cannabis companies are holding up in a changing market environment. Cash is one of the main metrics that the market is analyzing in these quarterly financial reports and we continue to prefer businesses that have strong balance sheets.

So far this year, the capital markets have not been as friendly to the cannabis sector and companies are having a tougher time at raising capital. Today, we want to highlight 3 Canadian cannabis producers that are well capitalized (when compared to their peers) and are well positioned to execute on previously announced initiatives.

Aleafia Health is Fully Funded and Positioned to Record Strong Growth

In our opinion, we believe that Aleafia Health (ALEF.TO) (ALEAF) is one of the most compelling opportunities from a valuation standpoint. Not only does the Canadian cannabis producer have a strong balance sheet (more than $40 million of cash) but it also has an attractive growth profile and is levered to some of the most profitable verticals of the cannabis value chain.

During the most recent quarters, Aleafia Health has reported impressive growth on a number of levels and this is a trend that we expect to continue on a going forward basis. The company has been focused on growing its production footprint while substantially increasing the number of registered medical cannabis patients that it serves.

One of the reasons we are excited about Aleafia Health is due to the cost-conscious approach that it has taken for growth. Unlike many of its peers, Aleafia Health did not expand to quickly or make massive acquisitions. The management team has been able to pinpoint assets that have improved the company’s leverage to the global cannabis market without overextending itself. When compared to many of its peers that completed massive acquisitions and expanded too quickly, we believe that Aleafia Health is well positioned to continue to increase market share.

Another reason we are excited about Aleafia Health is related to the structure of the business. The company is comprised of divisions that support each other, and we are favorable on the amount of synergies that can be found between these assets. From cannabis clinics to telemedicine, Aleafia Health represents a well-rounded business that has substantial growth prospects. The operating structure makes Aleafia Health a multi-faceted growth opportunity and we are favorable on the direction the management team is bringing the business.

Canopy Growth is a Global Cannabis Leader

Canopy Growth Corporation (WEED.TO) (CGC) is one of the best-known cannabis companies with the strongest balance sheet when compared to all other businesses in the industry. With almost $2 billion of cash on the balance sheet, the Canadian cannabis producer is well positioned to take advantage of unique growth opportunities and we believe that it puts the business in a league of its own.

During the last year, Canopy Growth has reported a number of developments that have not been positive for the story. From shutting down cultivation facilities to writing down more than $500 million of non-core assets, the company is cutting expenses and we will monitor how the management team continues to do so.

Although 2020 has been a tough year for the Canadian cannabis producer, the business is well positioned to survive the current market environment and we find this to be of significance. The same cannot be said for many of the company’s peers and we will monitor how the sector is able to bounce back. The recent trend for Canopy Growth has been to the upside and the shares have come well off its recent lows. We believe that the business has attractive growth prospects and is one that our readers need to be aware of.

Namaste has Developed a Multi-Faceted Platform for Growth

Namaste Technologies (N.V) (NXTTF) is a Canadian cannabis company that we believe deserves a mention. The company has a strong balance sheet and is well positioned to capitalize on the changing market landscape in Canada. At current levels, we believe that the market does not seem to be appropriately valuing the assets that fall under the Namaste umbrella and we find this to be of importance.

Namaste’s CannMart subsidiary is one of the most attractive aspects of the story and we are favorable on how the management team has been able to grow the business. CannMart has secured several strategic partners and we are favorable on the leverage that it has to the cannabis 2.0 market in Canada.

The Canadian cannabis company recently reported quarterly financial results and we found there to be a number of bright spots in the report. Through CannMart, Namaste is well positioned to capitalize on the Canadian recreational cannabis market and we are favorable on this aspect of the story. CannMart is working with several leading cannabis brands and we expect these brands to perform well on the platform.

At current levels, we believe that Namaste has a compelling valuation and a favorable risk-reward profile. We are bullish on the direction that the management team is bringing the business and believe that the market is discounting the growth prospects that are associated with the strategy. Going forward, we are favorable on Namaste’s opportunity to capitalize on burgeoning verticals of the cannabis market and is a company to be aware of.

 

 

 

 

 

 

 

Pursuant to an agreement between StoneBridge Partners LLC and Aleafia Health Inc. (ALEF) we have been hired for a period of 90 days beginning February 15, 2020 and ending June 15, 2020 to publicly disseminate information about (ALEF) including on the Website and other media including Facebook and Twitter. We are being paid $8,000 per month (ALEF) for or were paid “ZERO” shares of unrestricted or restricted common shares. We own zero shares of (ALEF), which we purchased in the open market. We plan to sell the “ZERO” shares of (ALEF) that we hold during the time the Website and/or Facebook and Twitter Information recommends that investors or visitors to the website purchase without further notice to you. We may buy or sell additional shares of (ALEF) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information.

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Authored By

Michael Berger

Michael Berger is Managing Partner of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.

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