The other four stocks teased by Jimmy Mengel for his Crow’s Nest newsletter aren’t necessarily as interesting (story wise) as the one we looked at yesterday… but I promised to try to ID them for you, so let’s jump right in.
I should let you know, first, that some of these are guesses. As usual, I’ll be clear when they are (I generally don’t like to post something that I’m less than 99% certain of, and usually we’re easily at 100% with the Thinkolator results, but sometimes I’ll hazard a guess).
We’ll go through them one at a time… first clues:
“BUYOUT FRENZY STOCK #2: A Green Grower for Big Growth
“I’ve found a marijuana grower that’s expertly avoided the pitfalls of many of the other cannabis companies in the space.
“It owns grow sites all across Canada, and it’s proven itself time and time again in its ability to translate scientific and agricultural expertise into profits.
“This company is nimble and is ready to expand into new markets in Canada, the U.S., and across the globe.”
Not much in the way of actual clues, there, so I’ll leave it to you to guess… pretty much any of the larger growers would fit those clues. My guess would be Aurora (ACB) or the controversy-mired Aphria (APHA), but those are just guesses. Both are pretty ludicrously valued based on the size of their current market, but, of course, that’s true of pretty much all growers. Given their generally more steady profitability growth in 2017 and 2018 (though they’re not operating at a profit right now), I’d probably single out APHA as my top guess for those very limited clues.
Analysts continue to anticipate that sales for the big players (including ACB, APHA and CGC, though you could throw a couple others in as well) will quadruple over the next three years as legalization settles in, but those estimates would have to be considered pretty wild guesses at this point — since no one knows how supply and demand will shake out in Canada for their core products, which brands will emerge (and whether anyone is allowed to advertise heavily to help build some brands), or what value-added products will be legalized in the coming years.
I don’t really have a lot of confidence in the sustainability of being primarily a “grower” — it seems almost inevitable that prices are going to fall pretty precipitously over the next few years, and Canadian growers have almost certainly overbuilt their capacity, but your opinion could easily differ.
My bias is that I think of marijuana as an agricultural product, and expect it to pretty quickly become a fungible commodity. If you think of it more like wine grapes than like barley for beer, and think the growing location or the skill of the grower or the proprietary plant variety will matter more than the tonnage or the branding of the end product, then you might be more excited than I am about picking the best growers from the list.
If you are intrigued by Aphria, by the way, whether it’s Mengel’s pick or not,