- The sector as a whole is up 12% month to date and HMMJ the marijuana ETF is up 25%.
- Investors are choosing companies with a wide range of market capitalization, anywhere from nano (under $50 million) to large cap (over $10 billion), and are not concentrating on one area.
- As share prices increase, we will analyze a total of 6 nano-cap companies (3 in part 1 and another 3 in part 2), to assist you in building your watchlist.
Investors near and far are finally showing signs of relief as they are starting to see their “bags” depreciate. The sector seems to be rebuilding confidence and we are finally seeing an influx of much-needed volume. Momentum continued this week following the Canopy and Constellation deal, as we saw the province of Ontario and Nova Scotia announce their supply agreements providing fuel to continue the uptrend. Horizons Marijuana ETF (TSX: HMMJ), the ETF seasoned investors refer up to when evaluating the momentum of the cannabis sector, is up 25% month to date and experiencing a share price we haven’t seen since January.
As the sector heats up, and some may fear unpredictable pull-backs, we will analyze companies that are in the same range of market capitalization (Nano, Micro, Small, Mid, Big). There are approximately 80 companies who have a market cap of under $50 million (Nano market capitalization). If we add up all the companies’ valuations, the total doesn’t even come close to home much Constellation Brands invested in Canopy growth (5 Billion).
Pros And Cons: Nano-sized companies have a tremendous potential for growth, but are extremely volatile, therefore as quickly as they go up they can experience a quick decline. If we take a look this month, New age farms (CSE: NF) and Future Farms (CSE: FFT) are up 160% and 111% month to date. Unfortunately not every company will experience the same gains, and with lack of news, the two mentioned may see some of those numbers drop. Another advantage one finds in these companies, is the lack of institutional investors, therefore less manipulation. With a degree of high-risk, institutions will usually invest once there is a confirmation of colossal news or a huge increase in positive volume. If one gets in before “big money” does, then you might have found a true gem. The price of these companies also attracts retail investors. Less initial capital is needed to start your investment journey, therefore one can get more shares and have a more diversified portfolio, unlike investing in large-cap companies. Lastly, most of these companies have less working capital and little or no revenue. They rely on doing private placements or diluting their shares to stay afloat, causing longer wait times for potential catalysts, unappealing share structures, and a significant amount of selling pressure. One absolutely needs to do a complete 360 analysis and ask themselves what is their tolerance of risk before investing in nano-cap stocks.
Undervalued Licenced Producers:
Cultivator Set on expanding to LATAM:
Pure Global Cannabis Inc (CSE: PURE) (OTC: PRCNF) a rookie as a publicly traded company (4-year tenure being private), but boasting a license to cultivate, shows that over the years they have combined the right experienced management team to be able to deliver in the cannabis sector. Commencing trading on July 10th, at a time where we saw a lack of investor interest and 52-week lows, most investors probably disregarded this company and have yet to add them to their watchlist. Pure has an 18k sq. ft facility in Brampton, Ontario, and plans to expand to 41k sq. ft with construction set to begin in the first quarter of 2019. In a recent update, they stated that they should receive their license to sell in the next couple of weeks, which would be a crucial catalyst in assisting their current share price. On August 15th, Pure announced a letter of intent to acquire a 60% interest in Sativa Nativa S.A.S. (with an option to increase the interest to 75%). Sativa Nativa is one of the few entities in Colombia currently licensed by the Colombian Ministry of Justice and Ministry of Health. A 100k sq ft. greenhouse is nearing construction completion, along with a 20,000 sq ft. GMP grade state-of-the-art greenhouse. Up to 28 hectares (69 acres) of agriculture land in Santa Marta, Colombia will be used for cultivation and Pure plans to expand to 1 million sq. ft by 2020. Once acquired Sativa Nativa will add additional revenue streams and increase shareholder value. Lastly, insiders own over 17% of the outstanding shares, and their most recent financing was a total of $11m and had shares set at 0.33$ which is higher than the current share price.
A Company That Sits at the Heart of an International Ecosystem:
Blissco Cannabis Corp. (CSE: BLIS) (OTC: HSTRF) currently occupies a 12,600 sq. ft facility in Langley, BC. BlissCo recently signed a service agreement with Namaste Technology, to create a Shopify-like e-commerce website and will soon unveil the next evolution of its brand for its projected October launch. Additionally, Blissco has a letter of intent to sell 720 kg of dried cannabis to a German biomedical and distribution company. Furthermore, they have a supply agreement with Supreme Cannabis Co (TSXV: FIRE). Supreme would supply a minimum of 1000 kg of dried cannabis to Blissco under this agreement. Blissco is currently working on being GMP certified (Gmp certification is needed to sell in Germany), and waiting for their license to sell and export. Once fully licensed through Blissco’s domestic and global partnerships, immediate top-line revenue is expected. Supreme also invested $3 million dollars in Bliss’s last financing where shares are 30 cents and warrants are 60 cents. With veteran companies partnering and investing in Blissco, a fair share structure, and more than $4m cash on hand, well keep watching Blissco for any other partnerships or acquisitions.
Revenue The Vertical Integrated Way:
Canada House Wellness Group (CSE: CHV) (SARSF) we wrote a complete overview a couple weeks ago. Canada House Wellness is also a licensed producer and has a market cap of approximately $35 million, for those reasons we feel they belong on this list. With an increase in share price of 10% month to date, we are slowly starting to see investor confidence. Their 3 unique subsidiaries, allow Canada House Wellness in becoming a vertically integrated company and a low-cost producer. In preparation for legalization, we have seen in recent weeks, CHV strengthen their management team and board of directors. To further solidify revenue an exclusive licensing agreement with Medicine Man Technologies (OTC: MDCL) for Canadian Deployment of its Intellectual Property and Product Lines was formed. Medicine Man recently announced an increase in revenue which caused their share price to increase by 40% in the last 30 days. As their one year anniversary since receiving their cultivation license approaches, and their next quarterly financials due, we will hopefully get the catalysts needed to increase the market capitalization. Combined projected 2019 revenues are approximately $53 million which is almost double their current market valuation. As the end of year approaches and once fully licenced with those projections, long-term shareholders will hopefully be rewarded.
(Source: CHV’s website)
One thing we’ve learned over the years is patience is greatly needed when investing in nano-cap companies. A realistic exit plan is also required to make sure you capitalize on gains. As most stocks increase “chasing” might not be the best strategy, perhaps analyzing those that have consolidated might be a better alternative. Using resources like the MJ Watchlist to compare share price, outstanding shares, and market caps and using the Month to date list to see who hasn’t increased yet, gives you an advantage to facilitate your research. We are currently working on Part 2 to this nano cap list, and will hopefully finish it shortly. Let’s hope the sector continues with game-changing news and upward trends.
Disclaimer: This article is for information only, we are not Pure or Blissco shareholders, we are invested in CHV, we do not plan to buy or sell within the next 2 days. No financial compensation was given for this article. We are not financial advisors this is not a buy or sell recommendation. View full Disclaimer.