In the space of a year cannabis stocks have turned investing on its head. Fortunes have already been made in an industry that is predicted to be worth $146.4 billion by 2025. The next few months will be critical for many companies and we’ve seen a lot of buzz around these companies: Aphria Inc (NYSE: APHA), Aurora Cannabis Inc (NYSE: ACB), and PotNetwork Holdings, Inc.
Aphria Inc. Continues to Fight a Hostile Takeover Bid
Aphria Inc. has received some strong support from famous short seller Andrew Left. His firm, Citron Research, forecast in December that the stock would jump to $8 before 2018 and these predictions held true.
Aphria’s recent spate of good news, including the fact that it would be one of the first producers to sell its own cannabis in Europe, has helped to give the stock a boost. Despite this most analysts are closely watching the ongoing drama of Green Growth Brands Inc. and their hostile takeover bid.
GGBXF are intent on continuing their attempts to acquire APHA despite the latters insistence that offering $6.95 per share is “significantly undervalued” and could “destroy the value for Aphira shareholders” the board has recommended that shareholders reject the bid and “take no action.
In general analysts predict an average price target of $14.25 per share, with one analysts setting the price target as high as $25. A Reuters survey of 10 analysts showed generally positive feelings with 3 recommending a buy, 4 predicting the stock would outperform, 2 recommending that investors hold and 1 predicting that the stock would underperform.
Aurora Cannabis Inc. prepares to release its fiscal Q2 financials
Aurora Cannabis is arguably one of the most important players in the cannabis sector and the investing world awaits their Fiscal Q2 2019 financials with bated breath. These will be the first financials to include the results of the early days of the launch of the legal Canadian recreational marijuana market, which makes them incredibly important.
Aurora gave a glimpse into its Q2 results in January and what they showed was promising. The company’s guidance suggested revenues between CA$50 million and CA$55 million, which falls well short of the analyst consensus of CA$67 million. Despite missing this target Aurora’s shares soared on the news but why?
As Gary Bourgeault suggests, it’s because Aurora didn’t miss, analysts did. Investors don’t seem to be particularly interested in the figures themselves but rather the fact that they continue to grow. Assuming Aurora’s guidance is correct then on monday they will report growth of almost 70% from the previous quarter, which is likely to excite investors.
Despite this there are some worrying trends for Aurora and other large cannabis players that bullish investors seem to have overlooked. The elephant in the room, as pointed out by Stone Fox Capital, is the oversupply scenario that could threaten to strangle growth. International growth is still sluggish and Aurora cannabis, as well as a number of smaller players, threaten to flood the market with product that there simply isn’t demand for.
Downturns in other cannabis stocks also cast a shadow over Aurora’s prospects. The company has heavily leveraged its positions in other stocks and Harvest Moon Cannabis Co. CEO Robert Doxtator estimates that the company has experienced on-paper losses of CA$425 million in the December quarter.
Despite this, according to Reuters, analysts maintain an outperform consensus on the stock and marketwatch has an average analyst price target of $12.08.
PotNetwork Holdings, Inc., an Emerging American CBD Player Set To Make Waves
PotNetwork Holdings, Inc. is a growing operator in the American CBD market. The company is set to profit from the Farm Bill. This iconic piece of legislation removes all cannabis fibre products, like hemp, from the Controlled Substances Act.
In pain English this means that it is now legal to manufacture, distribute and sell hemp-derived CBD products at a federal level. The U.S. Federal Government has legalized a market that is predicted to be worth $22.2 billion by 2022 and grow faster than any other cannabis sub-sector.
PotNetwork Holdings is one of a handful of companies that have been quietly positioning themselves in a market nobody else realized existed. In January Harbinger Research shed light on the potential of the company in a research report.
The analyst, Brian Connell, gave the company a 1 year price target of between $0.192 to $0.337 with a rating of “Strong Speculative Buy”. This signifies that the analyst believes the stock could be worth 50% more relative to the general market for U.S. equities within the next 12 to 14 months.
The analyst supported their predictions by pointing to POTNs proven ability to grow and build a brand through their subsidiary Diamond CBD. By Q3 2018 the company had generated over $18.1 million in revenue, surpassing all of its efforts in 2017. Harbinger were also impressed by the company’s ability to target overlooked subsets of the CBD market, including CBD for pets and edibles like coffee.
The company is still in its infancy but the stock has experienced an appreciation of 88.24% YTD and is well positioned to take advantage of the opportunities opened up by the farm bill.
The Cannabis Sector Is at a Watershed
The cannabis sector is interesting at the moment because analyst predictions don’t seem to matter much to investors. This is in part because of the fortunes that were made in the early days of Canadian legalization but it is also because despite its size the cannabis sector is still very young.
It is inordinately difficult for analysts to make predictions in light of the uncertain regulatory landscape. The unexpected rise of the CBD sector on the back of the Farm Bill is a perfect example of the unpredictable potential of the cannabis sector.
Oversupply problems could threaten to strangle the growth of major cannabis players but by the same token relaxing attitudes towards cannabis could open up incredible opportunities over the next few years.