NJ Cannabis Media -
November 5, 2018

Cannabis stocks undervalued; picking a winner not so easy

Written by Marc Schwarz
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Photo Credit: JOHN KARCZMIT

Looking to invest in publicly traded cannabis stocks? There’s good news and bad news.

Good: “I think the entire U.S. sector is undervalued,” iAnthus Capital Holdings CEO Hadley Ford told the 300-plus attendees at the inaugural NJ Cannabis Summit on Oct. 24. “If you look at the Canadian stock market three years ago, you had seven public companies in Canada which had a collective market cap of less than $1 billion. There was a company called Tweed worth $80 million and they bought a company called Bedrocan worth $40 million. The market loved the deal and traded it up to a $200 million valuation. The stock was about $2 Canadian. They renamed the company and called it Canopy and the stock is trading at over $60 today and has a market cap of over $30 billion.

“Interesting, the other guys  all came up – not as much as Canopy – but $10 to $15 billion,” Ford continued, “and the U.S. is 10 times as big as Canada.”

Bad: It’s very hard to differentiate who the winners will be, Ford said.

“This is a marathon and everyone’s on the Verrazzano Bridge and someone on the bridge is saying, ‘I’m the winner. That I’m going to have the laurel wreath on my head going into Central Park,” Ford said. “Nobody knows. I’ll say up here I have the best team, but you won’t know for years who the best teams are.”

So what should prospective investors do?

  1. Diversify. Yes, it’s an obvious strategy, but so often too many people overlook the obvious. “I’d buy a dollar of each stock today and then watch the volatility,” Ford says.
  2. Monitor. “Watch every quarter and see who’s executing what they said they would. Who’s putting in that ERP [Enterpise Resource Planning] system? Who’s reporting their numbers in a timely fashion? Who’s opening the dispensaries that they said they were going to open?” Ford said. “Over time you can determine who the best management teams are and overweight to them.”

Ford is bullish on the future as legalization takes hold across the country and the black market is trumped.

“There’s $50 billion that’s going to go from the bad guys to the good guys and that $50 billion is going to grow to $200 billion over the next 10 years,” Ford said.

“The sector should be worth $80 billion today. If you add up all the public and private money of everyone touching the leaf in the U.S., it’s less than $20 billion. So the sector itself is four times undervalued today from my perspective.”

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