5 of the Cheapest Pot Stocks Under $5

As of 2018, legal cannabis was a nearly $11 billion industry, at least according to sales figures published by Arcview Market Research and BDS Analytics in their annual State of the Legal Cannabis Markets report. But according to Wall Street, it could be a $50 billion, $75 billion, or even $200 billion worldwide industry in a decade. This is what makes owning marijuana stocks so exciting.

But as is often the case, the best long-term investments…

aren’t the companies with the largest market caps. Rather, it’s the potentially undiscovered gems in the marijuana industry that are small caps or hovering well below Wall Street’s radar that are liable to deliver the strongest long-term gains.

Using the most basic fundamental metric of all, the forward price-to-earnings (P/E) ratio, I screened for the cheapest pot stocks currently trading for less than $5 a share. Ultimately, five emerged as having a lower forward P/E ratio than the broad-based S&P 500, despite a considerably faster long-term growth rate.

Valens GroWorks: Forward P/E ratio of 8.7

Don’t be fooled by its $2.21 share price. Valens GroWorks (OTC:VGWCF) intends to be a big-time player in the extraction-services industry. And at less than nine times forward earnings per share, it’s the cheapest cannabis stock trading for less than $5 per share (and perhaps throughout the entire industry, regardless of share price).

What makes the extraction-services industry so intriguing is the fact that Canada is set to launch derivative products by mid-December. Derivatives being nondried flower product, such as edibles, vapes, infused beverages, topicals, and concentrates. All of these derivatives require processing from cannabis and/or hemp biomass, which is where Valens GroWorks comes into play. It’s becoming the go-to middleman for pot growers desperate to bolster their margins.

For its part, Valens GroWorks has snagged two deals of significance. It landed an 80,000 kilo-in-aggregate processing deal with HEXO in April that’ll span two years, and recently expanded its existing agreement with Tilray to include 125,000 kilos-in-aggregate of annual processing. With the company expected to push its annual processing capacity to 1 million kilos, it’ll soon have a mountain of predictable cash flow headed its way.

Supreme Cannabis Company: Forward P/E of 9.2

The only other pot stock under $5 a share that has a single-digit forward P/E ratio is The Supreme Cannabis Company (OTC:SPRWF). Despite a microscopic share price, Supreme Cannabis is valued at a mere nine times Wall Street’s consensus forward EPS.

The beauty of Supreme Cannabis is the company’s unique approach to growing weed. Rather than focusing on quantity, which is what most of its peers are doing, Supreme Cannabis has chosen to focus entirely on quality. The company’s 7Acres grow campus is projecting at least 50,000 kilos of annual output per year, but it’ll be of the premium and ultra-premium variety. There’s virtually no competition for top-tier quality cannabis, which should result in strong pricing power and healthy margins for dried flower and derivative products.

Furthermore, Supreme Cannabis is one of the four pot stocks that was chosen by PAX Labs to be a concentrate supplier of the Era vaping device. With vaping expected to be the leading sales generator among derivative products, and PAX being a top-3 name among vape device companies, this works out as a big win for Supreme Cannabis.

MediPharm Labs: Forward P/E of 15

Did I mention that extraction-service providers are important? Though Valens may be a bit cheaper on a forward basis, MediPharm Labs (OTC:MEDIF) also looks to return incredible value at 15 times next year’s EPS, according to Wall Street’s consensus.

Compared to its peers, MediPharm should have less in the way of peak processing capacity at 500,000 kilos per year. However, after beginning extraction and white label operations in November, the company already managed to turn a profit during the second quarter. That’s how valuable these 18-month to three-year extraction contracts are to these service companies. They’re providing highly predictable cash flow in an industry with very few guarantees.

Though it’s signed a number of deals with major growers, MediPharm Labs’ standout extraction contract thus far is with Cronos Group. MediPharm aims to supply Cronos with concentrates over a period of 18 months in a deal worth $30 million, although Cronos has the option of extending the deal to 24 months, which would double its value to $60 million…

Continue reading at THE MOTLEY FOOL


You May Also Like

About the Author: admin

Leave a Reply

Your email address will not be published.