Solid progress on the legalization front, increasing demand for therapeutic cannabis from an aging population, and changes in consumer preferences toward innovative recreational cannabis products have been driving the cannabis industry’s growth. The global market for legal marijuana is expected to reach $100 billion by 2027, registering a 19% CAGR. Also, the U.S. cannabis market is projected to reach $115 billion by 2030.
Although the shares of Calgary, Canada, cannabis producer Sundial Growers Inc. (SNDL) are up 38.8% in price year-to-date, the company’s unstable financials and bleak growth prospects could mean the stock may attract only limited investor attention in the near term. For its last reported quarter, SNDL’s gross revenue decreased 47.7% year-over-year to CAD12.74 million ($10.28 million), and its net loss amounted to CAD52.3 million ($42.18 million). Also, analysts expect its revenue to decline 9.9% from its year-ago value in the current year. The stock has declined 45.7% in price over the past nine months.
Therefore, we think fundamentally sound cannabis stocks OrganiGram Holdings Inc. (OGI), Village Farms International, Inc. (VFF), Akerna Corp. (KERN), and Greenlane Holdings, Inc. (GNLN), which have much higher upside potential compared to SNDL, could be better bets now.
OrganiGram Holdings Inc. (OGI)
Headquartered in Moncton, Canada, OGI produces indoor-grown cannabis for patients and adult recreational consumers. The company provides cannabis flowers, extracts, edibles and oils, beverages, and other cannabis products under Edison Reserve, Edison Cannabis Co., ANKR Organics, and Trailblazer. In addition, it offers medical cannabis products, including strains, cannabis oils, extracts, edibles, beverages, and vaporizers for the medical market.
In August, OGI launched SHRED’ems, a high-quality and bold flavored lineup of cannabis-infused gummies. SHRED’ems is an extension of the company’s high-priced SHRED product portfolio. Within two weeks of the product’s launch, it began capturing the market of edible cannabis products. The company believes that these gummies are rapidly growing and are an increasingly important segment of the Canadian market.
OGI’s net revenue for its fiscal third quarter, ended May 31, 2021, increased 12.8% year-over-year to $20.32 million. The company’s gross margin came in at $2.12 million, compared to a $50.22 million gross margin loss in the second quarter of 2020. Its net loss decreased 95.5% from the prior-year quarter to $4.01 million. Also, the company’s gross revenue grew 30.9% year-over-year to $29.11 million.
OGI’s $99.3 million consensus revenue for its fiscal period ending August 31, 2022, represents a 58.5% increase year-over-year. Its EPS is expected to grow 69.7% next year. Also, the stock has surged 16.4% in price over the past nine months and 72% over the past year.
Closing the last trading session at $2.27, the average analyst price target of $3.2 represents a 41% potential upside.
Village Farms International, Inc. (VFF)
VFF is a vertically integrated greenhouse grower based in Delta, Canada. The company operates through three segments–Produce Business; Energy Business; and Cannabis and Hemp Business. Also, VFF owns and operates a seven-megawatt landfill gas power plant. Village farms, Pure Sunfarms, Balanced Health Botanicals, Village Fields Hemp, and VF clean energy are brands under VFF.
Last month, Balanced Health Botanicals, launched its Synergy Collection, which consists of CBD and Functional Mushroom, Kava Root, and Cannabidiolic acid products, along with CBDistillery’s Cannabigerol (CBG) and Cannabinol (CBN) formulations. These new products should help the consumers streamline their daily wellness regimen with targeted products and eliminate ancillary dietary supplements.
During the second quarter, ended June 30, 2021, VFF’s total gross sales increased 116.1% year-over-year to CAD41.7 million ($33.63 million). The company’s total net sales grew 135.7% from the year-ago value to CAD30.4 million ($24.52 million). Its net income rose 300% from the prior-year quarter to CAD4 million ($3.23 million). Also, the company’s adjusted EBITDA increased 264% year-over-year to CAD9.1 million ($7.34 million).
VFF’s revenue is expected to increase 50.5% year-over-year to $393.97 million in its fiscal year 2022. Its EPS is estimated to grow 411.1% next year. Its stock has soared 70.1% in price over the past year.
A $13.49 consensus price target represents a 75.2% potential gain from the stock’s last closing price of $7.7.
Akerna Corp. (KERN)
KERN is a cannabis software company that enables regulatory compliance and inventory management in the United States and Canada. The Orlando, Fla.-based company provides its commercial software platform, MJ Platform, Trellis, and Viridian Sciences, to state-licensed businesses and Leaf Data Systems to state government regulatory agencies. Also, it offers cannabis cultivation management and software to optimize operational workflow in business analytics; and cannabis tracking technology that provides seed-to-sale-to-self data.
Last month, KERN acquired 365 Cannabis, a cannabis ERP and business management software system built on Microsoft’s Dynamics 365 Business Central, for $17 million. With the acquisition, KERN should be able to offer operational cannabis technology systems, financial, compliance, consulting, training, data analytics, and product development to cannabis operators.
During the second quarter, ended June 30, 2021, KERN’s total revenues increased 63.4% year-over-year to $4.91 million. The company’s gross profit grew 152.5% from its year-ago value to $2.99 million. Its revenue under the software sector rose 56.4% from the prior-year quarter to $4.46 million. Also, the company’s loss from operations decreased 2.1% year-over-year to $6.05 million.
Analysts expect KERN’s revenue to increase 49.5% year-over-year to 30.04 million in its fiscal year 2022. Its EPS is expected to grow 61.8% next quarter and 45.1% next year. Furthermore, the stock has gained 11.4% in price over the past year.
Closing its last trading session at $2.74, the $7 average analyst price target represents a 155.5% potential upside.
Greenlane Holdings, Inc. (GNLN)
GNLN is a Boca Raton, Fla.-based global developer and distributor of premium cannabis accessories and lifestyle products. The company provides vaporizers, liquid nicotine, pipes, bubblers, rigs, and other accessories for smoking and vaporization. GNLN markets its products under the VIBES rolling papers, Pollen Gear, the Marley Natural accessory line, Aerospaced & Groove grinders, K. Haring Glass Collections, Eyce specialty silicone smoking products, and Higher Standards brands, and through e-commerce websites.
Last month, one of GNLN’s brands, VIBES, launched “The Cali,” a newly shaped pre-roll that provides a game-changing smoking experience. The new product should provide consumers with a variety of paper collections based on material type, sizes, and smoking preferences.
For the second quarter, ended June 30, 2021, GNLN’s net sales increased 7.1% year-over-year to $34.72 million. The company’s gross profit grew 14% from its year-ago value to $7.77 million. Its net loss decreased 7.5% from the prior-year quarter to $5.84 million. Also, the company’s negative adjusted EBITDA declined 13.7% year-over-year to $3.69 million.
GNLN’s revenue is expected to increase 67.1% year-over-year to $308.3 million in its fiscal 2022. Its EPS is estimated to grow 84.3% in the current year.
A $5.77 consensus price target represents a 231.6% potential gain from the stock’s last closing price of $1.74.
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SNDL shares rose $0.00 (+0.46%) in premarket trading Wednesday. Year-to-date, SNDL has gained 39.39%, versus a 24.63% rise in the benchmark S&P 500 index during the same period.
About the Author: Priyanka Mandal
Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research. More...
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