The cannabis sector is notoriously complicated but investors can gain an edge by betting only on the companies that are showing year on year growth, such as US-based Veritas Farms Inc. (OTC: VFRM). Offering transparency and high-quality products, Veritas has earned the trust of both consumers and investors, which is of high importance in any emerging market.
With Canadian cannabis producers struggling and the recent volatility in stock prices in the cannabis market, observers are questioning the future of the sector out loud. In this still emerging industry, however, there are more questions than answers.
Over the past two weeks, equity prices have fallen across the sector after the underwhelming earnings results of some of the largest cannabis companies. This created a sense of discouragement among investors, but most are still optimistic about the long-term viability of the cannabis industry. Then, starting in the middle of last week, the market picked up and many companies saw their shares rebound, showing double-digit gains.
Canopy Growth (TSX:WEED), Aurora Cannabis Inc (TSX:ACB) and Aphria Inc (TSX:APHA) were the first to take off, claiming the top three performances on the TSX on November 20. Canopy was up more than 16% over the day, Aurora gained 12.5% and Aphria added just over 5.5% to its valuation.
On November 21, Hexo Corp (TSX: HEXO) joined the rebound camp, posting an impressive gain of over 35% over the day, followed by Aurora and Canopy, which grew 19% and 16% respectively.
But on November 22, the trend turned in the opposite direction. Hexo fell by more than 15.5% that day, Aurora lost 13% and Canopy lost just over 9%. Just three days later, Canopy and Hexo tried to improve, while Aurora worsened its losses.
Market volatility based on headlines
This recent volatility can be attributed to a reaction to headlines, which explains the short impact period. In the United States, news of the approval by the House of Representatives Judiciary Committee of a bill to legalize cannabis at the federal level was a major factor in the rise in stock prices over the past week.
This coincided with the announcement by the Ontario provincial government that it would overhaul the way retail marijuana licenses are distributed. But neither of these news is accompanied by immediate change. There is still no specific timeline for federal legalization in the United States. Regulatory changes for retail outlets in Canada’s most populous province will not be effectively implemented until the second half of 2020.
On November 26, it was a new FDA warning against CBD, one of the main ingredients in the cannabis plant, that heavily impacted the sector.
The three US cannabis companies that experienced profitable quarters
While Canadian-based cannabis companies face continuous ups and downs, some American companies show that profitability could be easier to achieve south of the border.
Last week, Veritas Farms Inc (OTC:VFRM), Trulieve Cannabis Corp (OTC:TCNNF), both headquartered in Florida, and Curaleaf Holdings Inc (OTC:CURLF), headquartered in Massachusetts, posted better-than-expected quarterly results.
Veritas Farms Inc is a vertically integrated agribusiness, which focuses on the production and distribution of high-quality full-spectrum hemp oil products with naturally occurring cannabinoids.
Currently, the company produces nine categories of CBD-based products, among which are lotions, tinctures, vegan capsules and pet products.
A new line of pet products won Veritas Farms a second-place award at the cannabis event ERCM Hemp Derived Pet products, that took place in Cape Coral, Florida, at the beginning of November.
Already having a staggering distribution network, comprising more than 4,800 stores across the US, Veritas Farms sealed an important new agreement with Bi-Mart network. Soon, Veritas’ CBD pet products will be featured on the shelves of the 74 stores that Bi-Mart runs.
Veritas Farms’ Q3 2019 results showed positive figures, with a 165% revenue growth compared to last year, up to $1.21 million. In addition, the company’s gross profits increased by 468% compared to the same period of the last fiscal year.
Trulieve, a medical cannabis grower with a market capitalization of $1.32 billion, aims to operate 44 stores in Florida by the end of December 2019. In the third quarter, it posted revenues of $70.7 million, exceeding its forecasted revenues of $65.6 million. Revenues increased by 22% over the previous quarter. The company also reiterated its $220 million revenue target for 2019, expecting it to reach $220-240 million.
At Curaleaf, sales growth enabled the multi-state operator to post a 27% increase in total revenue. Income was $9 million, compared to a loss of $3.2 million in the same period last year. Curaleaf is present in 12 states, operates 50 clinics, 14 culture sites and 13 processing centers.
Investors were kept in suspense by the latest earnings results presented by the major companies operating in the cannabis industry. However, some of the companies, like Aurora Cannabis and Canopy Growth, just claimed the best performances on the Toronto Stock Exchange, showing that a rebound is possible.
While the difficulties encountered by the biggest names in the cannabis industry might continue to put the sector in bad light, smaller caps like Veritas Farms Inc. show that profits on the cannabis market can still be achieved.