Over the last few months, we have been closely following WeedMD (WMD.V) (WDDMF) and believe that this is an opportunity to highlight after the Canadian cannabis producer recorded incredible growth during the second quarter.
WeedMD: A Canadian Cannabis Leader in the Making
Last week, WeedMD released second quarter financials that showed impressive growth on all levels. When compared to the prior quarter, revenues increased by 139% and the Canadian cannabis producer reported $12 million of net income. We have highlighted WeedMD on a number of occasions following our visit to the Strathroy facility in April and believe that the company is reaching an inflection point.
When compared to its peers, WeedMD is trading at a considerable discount and we expect this to change in the near future. The company is executing on several major growth initiatives that are focused on increasing the production capacity of cannabis flower (indoor and outdoor) and cannabis concentrates. As a result of these initiatives, we expect to see revenues ramp significantly higher in the fourth quarter and for this to be a catalyst for the business.
If you look at the way WeedMD’s production capacity increased on a quarter-over-quarter basis, you will see that this a company that is focused on growth. During the second quarter, the Canadian cannabis producer sold 1,979 kilograms of dried cannabis, a 150% increase over the previous quarter.
A few weeks ago, Health Canada granted WeedMD a license amendment to expand production into ten additional 10,000 sq. ft. cultivation rooms and ten new processing rooms at the Strathroy facility. Licensing of the 20 additional rooms and ancillary space more than doubles WeedMD’s licensed greenhouse production space and this will serve as a catalyst for significant revenue growth.
When you combine the potential revenue associated with the additional rooms with WeedMD’s outdoor operation, you have a recipe for incremental growth and we believe that this aspect of the story is flying under the radar. Going forward, the name of the game for WeedMD is execution and we will monitor how the story continues to advance.
The growth reflected in WeedMD’s second quarter financial results is impressive and definitely caught our attention. From the outdoor cultivation opportunity to the cannabis concentrate opportunity via CX Industries (the company’s wholly-owned subsidiary), WeedMD has attractive revenue streams and we expect to see revenues ramp higher as a result of these high-growth initiatives.
We have been bullish on the cannabis concentrate market and expect this vertical to prove to be a major value driver over the long term. A few months ago, WeedMD announced the launch of its recreational cannabis brand (Color). This is a company that has been focused on enhancing all aspects of the business. At current levels, we find the risk-reward scenario to be attractive and would not be surprised to see leading broker-dealers start to re-rate the business.
A Growth Cycle that is Just Getting Started
WeedMD represents a multi-faceted growth story that has several potential catalysts for growth that has been flying under the radar. We believe that the market does not associate much value to the outdoor operation and we find this to be significant. Going forward, the increased production capacity will play a key role in the success of the cannabis concentrates business and we are bullish on this aspect of the story.
When compared to its peers, the Canadian cannabis producer is trading at a considerable discount and we expect the improving fundamentals to change this trend in late 2019/early 2020. We believe that WeedMD is in the middle of a major transition and this is an opportunity to be watching.
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