Top Opportunities in the Oversold Cannabis Stock Space (ACB, SGMD, TCNNF, CRLBF, SNDL, TLRY, CGC, MJ)

The trend is clear: Americans increasingly support the eventual full national legalization of marijuana.

It’s not really even debatable at this point, and the only thing holding it back is legislative obstacles that appear to be teetering and soon to fall in the course of time.

At this point, there are already twenty states that have fully legalized cannabis for both medical and recreational use. Yet the federal government still considers cannabis an illegal substance at the Schedule 1 level. Nonetheless, legislators are making moves toward pressing this status, with a recent successful House vote moving one bill forward that could challenge the status quo in the Senate before long.

But even if this bill fails, another will surely follow. Hence, investors have reason to believe in the long-term future of the industry even if the current moment still presents obstacles.

However, markets tend to discount the future, pricing in long-term assumptions into the fabric of current pricing over time. That suggests the present deep bear market in cannabis stocks – the most active ETF in the space, ETFMG Alternative Harvest ETF (NYSEArca:MJ), is down from $40 per share in 2018 to just $8.32 per share at yesterday’s close – could represent a powerful opportunity as future legislative history plays out.

With that in mind, we take a look at some of the most interesting stocks in the space below.

Aurora Cannabis Inc. (Nasdaq:ACB) bills itself as the company that engages in the production, distribution and sale of cannabis products. 

The company also produces and sells indoor cultivation systems and hemp related food products. 

Aurora Cannabis Inc. (Nasdaq:ACB) recently announced that the Company has reached an agreement to acquire all of the issued and outstanding shares of TerraFarma Inc. (parent company of Thrive Cannabis) (“Thrive”) (the “Transaction”). The Transaction is based upon aggregate consideration of $38 million (the “Initial Consideration”) payable in cash and Aurora common shares (“Aurora Shares”), plus two earnout amounts (the “Earnout Consideration”) payable in Aurora Shares or cash (at the election of Aurora), if applicable, based on Thrive achieving certain revenue targets within two years of closing of the Transaction.

“As consolidation among licensed producers accelerates, it’s vital that any transactions we make, now or in the future, be strategic, accretive, and centred around adding exceptional talent and brands that align with our path to profitability,” said Miguel Martin, Chief Executive Officer of Aurora. “In these respects, Geoff and the Thrive team have a track record seldom found elsewhere in the Canadian market. They are truly exceptional cultivators who have gained trust with consumers and developed products that have been recognized and acclaimed by Canadian budtenders and industry peers. We see a unique opportunity to leverage their expertise to deliver near and long-term benefits for both our recreational and medical markets,” he continued.

Traders will note 3% piled on for shareholders of the name during the trailing week, but this action is running counter to the larger trend in the name. That said, ACB has evidenced sudden upward volatility on many prior occasions. What’s more, the company has seen interest climb, with an increase in recent trading volume above its longer-run average levels. 

Aurora Cannabis Inc. (Nasdaq:ACB) has a significant war chest ($385.4M) of cash on the books, which is balanced by about $122.9M in total current liabilities. ACB is pulling in trailing 12-month revenues of $230.5M. However, the company is seeing declines on the top-line on a quarterly y/y basis, with revenues falling at -10.5%.

Sugarmade Inc. (OTC US:SGMD) may be smaller and less well known than other names in this list, but the stock could be one of the most interesting in the space given its recent catalysts and its scaling growth, especially considering its tiny market cap of just $4.4 million.

Sugarmade currently operates a cannabis delivery business with cultivation and product manufacturing coming into place to round out a fully vertical model. To help build that model out, the company is planting at its large 640-acre outdoor cultivation site associated with its recently acquired Lemon Glow subsidiary. But there’s more here than growing sales and verticalization. 

Sugarmade Inc. (OTC US:SGMD) just put out news this morning announcing its first transaction related to its collaborative cannabis cultivation strategy via a definitive and executed contract with Cannabis Global, Inc. (OTCPink: CBGL). According to the release, under the terms of the agreement, Sugarmade, via partner licensed and permitted Lake Country California cannabis cultivators, will produce approximately 25,000 pounds of “Fresh Frozen” cannabis, which Cannabis Global, Inc. will use in its product lines and will distribute to the California marketplace. 

Fresh Frozen cannabis is cultivated to be immediately flash frozen upon harvest instead of the traditional treatment of drying and curing after harvest. The companies have signed a pre-booked, fixed-price contract in the amount of $700,000, which will include cash payments from Cannabis Global to Sugarmade of $300,000 and notes for the balance of $400,000.  Planting of the cultivators is expected to begin in mid-May and continue into early June.

Jimmy Chan, CEO of Sugarmade, commented, “As we recently announced to our shareholders, we see a strong business model of utilizing now idle resources of other California cultivators who have decided they can no longer afford to cultivate cannabis and market their biomass into the marketplace. This new model will allow local Lake Country, California cannabis companies to remain in business to do what they do best – cultivate cannabis – while allowing Sugarmade to concentrate on distribution and marketing of cannabis flower and manufactured products.”

Sugarmade Inc. (OTC US:SGMD) could be in the process of forming a double bottom around the $0.0004 per share level. That pattern actually represents some measure of sector outperformance, with SGMD shares moving sideways over the past two months while other stocks in the cannabis space trend lower. That could be an important signal as the company ramps up its value proposition.

Cresco Labs Inc. (OTC US:CRLBF) engages in cultivating medical grade cannabis, manufacturing medical products derived from cannabis cultivation, and distributing such products to medical or adult use consumers. 

It focuses on regulatory compliance while working to develop condition-specific strains of cannabis and non-invasive delivery methods. 

Cresco Labs Inc. (OTC US:CRLBF) recently announced the launch of its premium craft brand FloraCal Farms, which features unique genetics in curated flower, live rosin vape and live rosin concentrate formats now available at all Illinois Sunnyside stores and other retailers ahead of the 420 cannabis holiday.

“FloraCal Farms’ vision is to deliver a first-class experience to sophisticated cannabis consumers who value unique terpene profiles, flower structure and all the fruits of artisanal cultivation and processing methods,” said Charles Bachtell, CEO & Co-Founder of Cresco Labs. “We plan to launch FloraCal Farms in other markets throughout the year to reach the ultra-premium shopper. Along with our Cresco and High Supply brands, our uniquely designed portfolio architecture of tiered inhalable offerings and pricing will allow us to offer a variety of value propositions for consumers and to compete incredibly well in the marketplace.”

The stock has suffered a bit of late, with shares of CRLBF taking a hit in recent action, down about -17% over the past week. Over the past month, shares of the stock have suffered from clear selling pressure, dropping by roughly -30%. 

Cresco Labs Inc. (OTC US:CRLBF) managed to rope in revenues totaling $274.5M in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 29.8%, as compared to year-ago data in comparable terms. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($282.4M against $364.3M, respectively).

Other core stocks in the cannabis space include Trulieve Cannabis Corp. (OTC US:TCNNF), Sundial Growers Inc. (Nasdaq:SNDL), Tilray Brands Inc. (Nasdaq:TLRY), and Canopy Growth Corp. (Nasdaq:CGC).