Now a days investing into cannabis companies is a whole different ball game post legalization. The investing landscape has changed so dramatically that we now need to be a much smarter, safer and in a sense more conservative investor to succeed when it comes to cannabis investing. From 2017-2018, the years when the cannabis industry was exploding and receiving a ton of hype, you had a much greater chance of winning big weather it was on a penny stock, or a rock solid large cap licensed producer, it pretty much didn't matter, if the company was into “cannabis†it was going up.
We have seen a huge change within the market over the last 12 months, especially after legalization. Investors are realizing that the companies positioned to capitalize on the global market, or the companies that have positioned themselves in highly profitable niches like extraction, their stocks are doing very well to this day. Unfortunately for other companies namely small cap companies who don't really have a distribution channel or global presence, we are seeing many of those stocks stuck in nasty downtrends hitting fresh 52 week lows as the weeks go by. In my opinion, there is going to be a massive amount of consolidation going on within the cannabis industry where the large cap licensed producers continue on an acquisition frenzy until all of the small cap companies get bought out or go bankrupt, unless of course they are well positioned in a very profitable niche.
This bring us to our next point. Post legalization has created a lot of value for many of the large cap cannabis companies and their valuations reflect the successful partnerships and high profile hires we have seen across the sector so far. Personally for me I like to invest primarily in large cap cannabis companies but I struggle with finding a large cap company where I feel that the valuation is relatively cheap.
One stock that comes to mind is Aphria (APHA), and although I feel it was tainted after a short sellers report brought the companies stock price down past $5 Canadian, I think it could be one of the last remaining bargains within the large caps in the cannabis sector.
Comparing the performance of Aurora Cannabis (ACB), Cronos Group (CRON), Canopy Growth (CGC) and Aphria we can see that over the past year Aphria is clearly the under performer of the pack.
With a market cap of 2.59 billion ($CAD) as of Monday may 27th, over 1000 employees,115,000 kgs of current annual cannabis production and a global footprint in 10 countries and counting it's clear that Aphria has some valuable assets that I feel the market is discounting.
In my personal opinion Aphria is very undervalued to its large cap counterparts and one of the last bargains we may see in a while. To reinforce this statement, Jefferies analyst Owen Bennette initiated coverage on Aphria with a $15 price target (USD) and stated that he felt the company was undervalued. As a value investor I struggle to buy into momentum when it comes to finding an entry point in the booming cannabis industry, but in this case Aphria checks off many of the boxes for me.
To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here.
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