2019 has not been a great year for pot stocks. With scandal, supply issues, and regulatory uncertainty dragging down some of the industry’s biggest names, we look at some small-cap pot stocks that might have gone under the radar amid the bigger picture problems facing cannabis companies.
With the passage of legalization 2.0 last month setting the market up for the arrival of highly-anticipated products such as vapes, edibles, and infused beverages, 2020 could be the year that we finally see the “green rush” that investors and cannabis companies have been eagerly awaiting. These products are expected to bring in over three million new customers to Canada’s cannabis market, and you can expect to see them hit shelves across the country by mid-December, once the necessary paperwork is processed.
Let’s take a look at the small-cap pot stocks catching our eye in the new year:
Namaste Technologies (TSXV:N) (OTCQB:NXTTF)
Like all pot stocks in the first year of legal cannabis, Namaste has encountered its fair share of troubles. The dismissal of former CEO Sean Dollinger back in February for alleged securities fraud rocked the company’s stock, but after a summer slump, the company appointed interim CEO Meni Morim to the role on a permanent basis and under his leadership, Namaste Technologies looks to have finally turned a corner.
Namaste operates over 30 websites across 20 different countries. Its flagship Canadian site, CannMart, has everything that the expected three million new 2.0 consumers will be looking for. From an already available wide range of vapes to Namaste’s expansion into edibles following its 49% acquisition of Choklat, CannMart looks well stocked up to meet all the demands of the 2.0 market.
Last week, the e-commerce cannabis company reported solid Q3 earnings, which saw consolidated revenue of $3.8 million CAD despite the closure of several underperforming websites, highlighting Namaste’s ability to generate revenue from alternative sources. Namaste stock is currently trading at just $0.37, which looks like a really good opportunity ahead of the 2.0 market.
Aleafia Health Inc (TSX:ALEF) (OTCQX:ALEAF)
Aleafia is yet another company that failed to come through the first year of legalization unscathed. After hitting a peak of $2.77 in February, Aleafia Health lost over 70% of its value as it sank to a year-low last week. However, while most pot stocks tanked under the pressure of the struggling industry, Aleafia’s shares were largely driven down by a stock dilution in March that funded its $173 million CAD takeover of Emblem.
As an investor, don’t look at that 70% decline as an indication of a poorly performing company, but rather as a bargain opportunity for one of the stronger cannabis companies on the market. In August, the company reported a revenue increase of 159% from the previous quarter with CEO Geoffrey Bernic claiming, “the best is yet to come.” Following the completion of its flagship facility in Paris, Ontario, hailed as “The Crown Jewel” of Aleafia Health’s operations, the company now has a production capacity of 115,000 kilograms and is expected to turn profitable in Q3.
Valens GroWorks Corp (TSXV:VGW) (OTCQX:VGWCF)
Valens is perhaps the most intriguing pot stock on this list. While its counterparts tanked in line with the prevailing industry trends, VGW stock has more than doubled in value since the beginning of the year. Also, unlike the other companies on this list, Valens specializes in cannabis extraction services and is one of the two leading companies in the country in this field, which is pivotal in the production of 2.0 products.
The company has penned a number of agreements that highlight the value of its service in the 2.0 market. The first of these was an expansion on its agreement with Tilray (NASDAQ:TLRY), which will see the extraction company process 60,000 kilograms of hemp biomass, a 300% increase on the previously agreed figure of 15,000 kilograms. That’s a lot of business for Valens GroWorks. Then in September, it became the first third-party cannabis company to sign a deal with Shoppers Drug Mart to sell its range of oil-based products across Shoppers’ 1,300 stores.
In its most recent earnings report, Valens posted net income of $5.9 million CAD, after suffering a net loss of $10.5 million CAD in the previous quarter, which is quite the turnaround. Revenue also increased to $16.5 million CAD, an 87% rise over the second quarter, and a 641% increase from Q1. VGW stock is currently trading at $2.87, but don’t expect it to hover around that cheap for much longer.
So, that’s our two cents on some of the most alluring small-cap pot stocks on the market. While it remains unclear if legalization 2.0 will completely upheave the cannabis market as much as many investors and analysts believe, there is no doubt that 2020 will be a busy year indeed for the cannabis market. What do you think?
Featured Image: DepositPhotos © MysteryShot