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, do pay attention to the kerfuffle they are trying to recover from — there was a strong short seller campaign against the stock early this year, alleging, among other things, that they overpaid for their Latin American acquisitions in part because the management team had a conflict of interest… that drove the shares down and led to a shakeup at the top, then a takeover attempt from Green Growth Brands that fell flat and was canceled a few weeks ago. I’m not interested in the stock, but it does trade at a dramatically lower valuation (on sales, at least) than either Canopy or Aurora… and it has obviously been a takeover target, at least briefly, though there wasn’t much interest in shareholders in selling at what they must believe are depressed prices.

Next?

“BUYOUT TARGET STOCK #3: Ditching Painkillers for Cannabis

“The management team of this next company is no stranger to the painkiller market…

“The co-founder and president is literally the man who brought the world the $3.6 billion painkiller OxyContin through his time as CEO at Purdue Pharma, one of the world’s largest privately-held pharmaceutical companies.

“But he’s left all that behind and is ready to bring the world a better product, free of the drawbacks of highly-addictive painkillers.

“His mission is to bring consistency to medical-grade cannabis.

“As the founders of this company told me on record: ‘We’re going to be producing that same consistent high quality… it’ll be the same every time. That’s what’s going to command the premium price.'”

That one is a stock that Mengel has been touting for years, Emblem… but it has now merged into Aleafia Health (ALEF.TO, ALEAF OTC in the US). This is how they describe themselves:

“Aleafia Health Inc is a vertically integrated cannabis health and wellness company which owns three cannabis product and cultivation facilities where it produces a diverse portfolio of commercially high-margin derivative products including oils, capsules and sprays. The company operates national network of medical cannabis clinics and has seen over 60,000 patients to date.”

Don’t know much else about them, though they say they’re growing fast and you can see their investor presentation here. Their press release from last week includes a little more detail, including the fact that the combined company hit revenue of $11.5 million in 2018 — which is rapid growth but, of course, that’s nowhere near enough revenue to cover their expenses, and it’s still trivial relative to the size of the company (market cap is about US$340 million). An interesting take on building up a medical cannabis brand network, so those interested in the health and wellness side might want to read up on this one some more.

While you do that, we’ll move on…

“BUYOUT TARGET STOCK #4: The FedEx of Cannabis

This company is currently constructing an 800,000-square-foot production facility at an international airport.

“It will be capable of producing in excess of 100,000 kg of cannabis per year.

“It’s also the world’s only cannabis facility located on the property of an international airport, which gives it access to international customs, as well as air and ground domestic and international courier services.

“AND BUILT-IN BONUS PROFITS: any and all new legalizations in the U.S. or global markets will bring an instant additional windfall.

“This pick already has the potential to instantly turn a $5,000 investment into $50,000… but its positioning in the U.S. can line your pockets with additional gains from there.”

That’s almost certainly Aurora Cannabis (ACB), another of the large growers in Canada that’s also trying to set itself up strategically for international expansion. That hint is pretty old, so presumably this is one that they’re recycling from one of the older teaser pitches Mengel made in the past — the Aurora Sky growing facility was one of the more advanced facilities when it was being built near Edmonton airport in 2017, but construction was completed last year and they got their selling license back in October.

Aurora has been busy acquiring other growers for years as it expands, and it’s one of the biggies, so its earnings are always watched closely — they should report next week, there’s a sumup here from a Motley Fool writer about what to look for in that report.

If Aurora does ever end up getting bought out, it would probably mostly be because they’re just one of the biggies and someone wants some instant scale. I’ve seen rumors over the past year or so indicating that both Diageo (DEO) and Coca Cola (KO) were interested in Aurora, though nothing big yet and Aurora just keeps acquiring more companies and growing its footprint… and, of course, all those acquisitions are being done with shares, so the share count is soaring and Aurora is trading at a bit of a price/sales discount to Canopy (assuming, for a moment, that anyone is thinking of valuation when it comes to Canadian marijuana growers).

And one more…

“BUYOUT TARGET STOCK #5: The Amazon of Marijuana

“Cannabis in pre-dosed pill form has become the new standard for medical marijuana.
It bypasses the risks and inconsistencies of smoking and puts medical cannabis where it most needs to be for many patients: on the shelf of the medicine cabinet.

“This company has a growing share of the market, and it’s ready to jump into new areas.

“It has a streamlined process for new patients to find a clinic and receive a diagnosis.

“The diagnostic process is simple and easy… and keeps patients locked in.

“Then it supports these patients with direct shipments right to their doorstep.

“These are regularly-scheduled deliveries, not one-offs, and so they provide stable revenue.

“And a delivery takes just 24 hours to be processed and shipped — just like Amazon!

“This is the future of the industry, and this innovative company has very few rivals who can match its consistency, quality, and convenience.”

This is also less than certain, but I’ll go out on a limb and guess that it’s likely to be another pitch for the beaten-down Namaste Technologies (N.V in Toronto, NXTTF OTC in the US), which does have ambitions for that “Amazon of Weed” label, though once you get past that ambitious goal the company itself has been wildly disappointing — led by their now-ousted CEO Sean Dollinger, who was accused of fraud by Citron back in October.

I don’t really know if Mengel is pitching Namaste here — it is a company that was built up to create a telemedicine and big data-fueled medical marijuana service to connect patients with virtual doctors (and prescriptions) and the best strains of marijuana, sold through their CannMart marketplace, though for most of its short life it has just been a roll-up of vape-pen retailers. It’s the best match for the clues, though I’d feel substantially more comfortable with Aleafia than with Namaste at this point on the “targeted wellness strains” and “relationships with doctors and clinics” front.

They are in transition to new leadership now, so I have no idea what their new strategy will be or how they’ll sell themselves, and they haven’t yet even released current financials yet, so buyer beware (they’ve also been dropping the “medical” pitch from their promo materials to some degree, it seems to me, so maybe they’re going after the recreational market more — which is, of course, likely to much bigger but also lower margin and more competitive).

This is one of the few marijuana stocks that has been a genuinely terrible performer, down about 80% from its highs of last Fall when it was touted by the Motley Fool as “Tom Gardner’s Favorite Marijuana Stock” (a suggestion I imagine Gardner regrets, though he’s never written about it publicly), so maybe it appeals to bargain hunters who are on the takeover hunt… but it’s hard to see a large brand wanting to tie itself to this operation.

So… as I said, not so definitive this time around — Aurora and Aleafia are pretty certain matches, Namaste and Aphria are more in the “guess” category. Have any better matches for those four? Or any other marijuana takeover candidates you think are more compelling for whatever reason? Let us know with a comment below.