For years, promises of growth had been more than enough to send marijuana stock valuations higher. However, things changed when Canada legalized recreational marijuana and opened its doors to adult-use weed sales on Oct. 17, 2018. No longer are promises sufficient to send cannabis stock market caps higher. Instead, Wall Street is looking to marijuana stock operating results and allowing sales growth to do a lot of the talking.
Considering that Canada is struggling with early stage supply issues, and most recreationally legal U.S. states are battling persistent black markets because of high excise tax rates, cannabis sales growth has mostly been disappointing this year. But according to Wall Street, four pot stocks are on track to grow their top lines by a minimum of 355% next year…
Auxly Cannabis Group: Sales growth of 3,056%
In terms of the fastest-growing cannabis stocks, there’s Auxly Cannabis Group (OTC:CBWTF) and everyone else next year. Auxly, which has more than one dozen streaming deals in place, as well as a notable joint venture with Sunens, is expected to grow sales from an estimated 5.8 million Canadian dollars in 2019 to CA$184.3 million in sales.
You’re probably wondering why Auxly Cannabis will only generate CA$5.8 million in full-year sales after Canada legalized recreational marijuana. For starters, Auxly’s production is expected to come from its streaming partners and its Sunens joint venture. Most of these streaming partnerships aren’t yet licensed and producing, while the Sunens joint venture won’t begin production until the second quarter of next year. Most of its revenue in 2019 will likely come from contract revenue via wholly owned subsidiary KGK Sciences.
The other reason is that Auxly’s management team has clearly stated its intention to hold back dried flower production with the intent of transforming this product into high-margin derivatives (e.g., vapes, edibles, and concentrates). Dried flower is a relatively low-margin products, so Auxly is forgoing low-margin sales now for higher-margin derivatives later, which will begin hitting dispensary shelves in mid-December.
The Green Organic Dutchman: 582%
Small-cap Canadian grower Green Organic Dutchman (OTC:TGODF) also has an opportunity to knock Wall Street’s socks off next year. The consensus suggests that sales could surge from CA$39.1 million in 2019 to CA$227.9 million in 2020.
When fully operational, Green Organic Dutchman projects as a top-five producer in Canada, with 219,000 kilos of peak production. And like Auxly Cannabis, TGOD, as the company is known, plans to focus a lot of its attention on derivative products. It has facility space devoted to beverage and edible production, and signed a three-year extraction-services agreement not too long ago with Neptune Wellness Solutions that’ll cover an aggregate of 230,000 kilos of cannabis and hemp biomass. With the company’s flagship Valleyfield campus recently receiving its organic certification, and commercial production set to ramp up, it’s easy to see how TGOD’s sales could skyrocket next year.
Then again, it’s also important to understand that TGOD was very late to the party in terms of getting its product to market, which is why its sales are set to soar so dramatically in 2020. Even with a focus on high-margin derivatives, it’s still a toss-up as to whether or not this surge in sales will lead to the company’s first-year of profitability…
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