Marijuana stocks have had a rough ride in the last couple of months.
As is often the case, reality popped the pot bubble: once marijuana became legalized in Canada—and as a number of states in the U.S. joined the growing list of states that have legalized the drug in some form—and the numbers started to become real, the euphoria disappeared and cannabis stocks fell from their lofty premiums.
But more recently, the marijuana industry has gotten some very good news.
In December, the 2018 Farm Bill was passed. The bill removed hemp from the Controlled Substances Act, which could prove to be a watershed event for the hemp industry in the U.S., an industry that has been growing rapidly in the last few years.
The 2014 Farm Bill allowed for state-regulated pilot programs for growing “industrial hemp.” By 2016, there were 9,000 acres of industrial hemp grown in the U.S. In 2017, the number of acres nearly tripled to 25,000. And then in 2018, it nearly tripled again, to 77,000 acres.
But the 2018 Farm Bill opens the doors for farmers to grow hemp more broadly—making hemp eligible for crop insurance and allowing transfers of it across state lines—and legalizes CBD products derived from legally produced industrial hemp for consumers. The Bill is being seen as a step toward the legalization of marijuana use nationwide.
“This is a watershed moment for CBD in the United States,” said Bethany Gomez, director of research at the Brightfield Group. They estimate that CBD will be a $22 billion market by 2022. “CBD [will] make its way to the shelves of larger scale, mainstream distribution channels and pave the way for the large mainstream consumer packaged goods companies in industries like drinks, beauty, pet, skin care and tobacco to develop CBD products and capitalize on this emerging industry.”
Another bright spot came just last week, when Piper Jaffray joined a small but growing list of brokerages covering the cannabis sector, in a sign that large brokerages are beginning to take the sector seriously.
But as the world begins to take the marijuana industry more seriously, promises of what’s to come are no longer enough to push pot stocks higher. Instead, investors are looking for tangible evidence of marijuana stocks’ potential.
Here are two pot stocks that could have a very strong year ahead.
OrganiGram (OTC: OGRMF, TSXV: OGI.VN)
OrganiGram (OTC: OGRMF, TSXV: OGI.VN) is an under-the-radar Canadian grower, but it could be one of the best pot stocks to buy this year.
It may not be able to boast a massive investment from a major player outside of the industry like Canopy Growth (NYSE: CGC), but the company comes to the table with some competitive advantages that other growers can’t boast.
To begin with, OrganiGram is profitable while other growers continue to lose money. The company hasn’t spread itself thin with production facilities spread across Canada, but rather operates one facility which means that the company is able to centralize costs, and thus, improve its margins, giving it a leg up over other growers.
And speaking of that one location, OrganiGram’s Moncton, New Brunswick, 490,000 square foot facility uses a three-tiered growing system that is enabling the company to increase production capacity to 113,000 kilograms annually – putting it among the top 10 producers in Canada. To understand just how impressive that is, there are other growers with over 1 million square feet of production space that are putting out just 75,000 kilograms annually.
It’s also expected that OrganiGram’s earnings will dramatically increase in 2019. The company has recreational marijuana supply agreements in place with all but one of Canada’s provinces. And its low operating costs and industry-leading crop yields are expected to produce strong earnings growth as the Canadian marijuana market develops.
OrganiGram could also profit from international growth this year, with its partnerships in Australia and Germany and its investment in Serbia-based hemp CBD company, Eviana, has the potential to generate higher sales in the near future.
The average analyst price target for OrganiGram is C$8.83, indicating possible upside of 42% over the next twelve months.
Origin House (OTC: ORHOF)
You may not have heard of Origin House (OTC: ORHOF), but the company’s growth prospects are pretty impressive.
Origin House is headquartered in Ottawa, but the bulk of its operations are in California, where the company is the leading distributor of cannabis products in the state. And that’s a very good position to be in as California is the largest legal marijuana market in the world, with projected cannabis sales of $7.7 billion by 2022.
The California recreational market is still young, having only been open for a year. But 2019 should be a banner year for Origin House as it opens more dispensaries thought the state.
Origin House is also expanding on its home turf this year. The company recently acquired leading Canadian vape retailer 180 Smoke, and the deal should give Origin House a strong launch pad for its own retail cannabis brands in Canada.
Speaking of, the company is also likely to see some strong momentum form its expanding lineup of its brands. Origin House is planning to shift its revenue mix from 70% from distribution and 30% from selling its own brands to a 50-50 mix starting this year.
The other thing to watch for this year is a potential takeover. The company announced recently that it had taken steps to fend off a potential hostile takeover after having been “approached by several public cannabis companies contemplating stock-based offers to acquire” it. It’s clear Origin House isn’t interested in selling at a price that doesn’t value its prospects highly enough, but keep your eyes peeled for a potentially lucrative offer down the road.