Last year, the Democratic Party won a major electoral victory at the upper Federal levels, taking control of the White House and the US Senate, while retaining control of the House of Representatives. Their control of Congress rests on thin margins – but it is a legislative majority, and it held out high hopes of real policy shifts from the Trump Administration. Cannabis investors, especially, were pleased, as the Democrats are seen as far more likely to legalize the substance at the Federal level than the Republicans.
Looking at current conditions in the cannabis sector, Roth Capital’s Scott Fortune writes: “With federal legalization seemingly a much longer-term catalyst within the U.S. cannabis industry, we believe investors will continue to focus on NASDAQ-listed operations, which brings enhanced liquidity while trading on a major U.S. exchange… In our view, we expect underfollowed emerging cannabis companies with robust growth projected to receive a [high] level of interest from institutions and retail investors over time.”
Against this backdrop, we’ve used the TipRanks database to pull the details on two of Fortune’s ‘underfollowed emerging cannabis’ picks; these are both buy-rated equities with triple-digit upside potential for the year ahead. Let’s see what makes these stocks attractive.
The first cannabis stock we’ll look at is Flora Growth, a Colombian-based company with operations in North American and European cannabis markets. Flora Growth has a wide portfolio of cannabis products, including skin care, food, and beverages, based on in-house production of natural, high-quality cannabis and cannabis derivatives. The company acknowledges that the cannabis industry faces a great deal of uncertainty – much of that deriving from the uneven legal regimes in the US – and aims to counter that with consistently reliable high-quality products that will meet regulatory standards in target markets.
Flora Growth cultivates its crop at its wholly-owned growth facility in Bucaramanga, Colombia. The location covers over 247 acres of prime cultivation land, with 12.5 hours average daily sunlight and six natural water springs. The facility is one of the world’s largest outdoor cannabis grow sites.
In May of this year, Flora Growth announced its IPO, putting 3,333,333 shares of stock on the US markets at $5 each. The IPO raised over $16.66 million in gross proceeds, and the company has a current market cap of $192.5 million.
Flora Growth reported a cash balance of $19 million as of June 30, along with revenues of $2 million for the first half of 2021. The revenue total was up dramatically from 1H20, which saw just $100,000 in revenues. Looking ahead to the second half of 2021, the company expects the top line to come in between $9 million and $11 million.
Roth Capital’s Fortune sees Flora Growth’s Colombian roots as the supporting factor in the company’s expansion. He explains, “We believe FLGC is uniquely positioned as a leading low-cost producer of cannabis through its Colombian cultivation, with an emerging international medical cannabis opportunity after Colombia’s recent decree to allow flower exports. FLGC is building a global distribution network to sell a broad portfolio of wholesale and in-house branded CBD/THC products. We believe recent Colombian regulatory changes provide significant growth opportunities for LatAm/European cannabis exportation.”
The analyst continued, “FLGC’s NASDAQ listing and access to capital at more conventional costs also differentiate the company by attracting institutional capital. We believe its low-cost production, CPG brands, U.S. exchange listing warrant a valuation premium.”
Fortune’s upbeat outlook leads him to put a Buy rating on the stock, and his price target, of $10, implies an upside of 118% for the year ahead. (To watch Fortune’s track record, click here)
Turning now to the rest of the Street, it has been relatively quiet when it comes to other analyst activity. Only one other analyst has posted a recent review, but it was also bullish, so the consensus rating is a Moderate Buy. In addition, the $10.75 average price target indicates upside potential of ~135%. (See Flora Growth’s stock analysis on TipRanks)
IM Cannabis Corporation (IMCC)
Our next stock, IM Cannabis, operates as a leader in the Israeli cannabis market. IM Cannabis, called IMC, has been a leader in that country’s medical cannabis sector since 2008, and is built up a reputation for quality strains of medical-grade cannabis and cannabis extracts. IMC also has operations in both Canada and Germany.
IMC has seen three consecutive quarters of sequential revenue growth, and the most recent reported, 2Q21, showed C$11.1 million (USD$8.91) at the top line, a gain of 27% over the 2Q20 results. The company ran an EPS loss of 14 Canadian cents per share in the quarter (11.2 cents American), an improvement of 27% from the year before.
IMC will report its Q3 numbers at the end of this month, and the company expects substantial continued growth in revenues. Early in July, the company completed its acquisition of MYM Nutraceuticals, a Canadian cannabis company with operations in Quebec and Nova Scotia. The acquisition was conducted in an all-stock transaction. IMC’s upcoming Q3 numbers will reflect almost a full quarter of MYM results.
Also to be reflected in the Q3 numbers is IMC’s acquisition of Panaxia, an Israeli pharmacy company. The acquisition came with an aggregate purchase price of $7.2 million, but will bring to IMC Panaxia’s online activities, intellectual properties, and medical cannabis licenses.
Scott Fortune, in his note on IMC for Roth Capital, sees the Israeli and Canadian markets as the key to the company’s current success, writing, “As a pioneer of Israeli’s medical cannabis industry, IMC is best positioned with its well-known brands to garner market share in Israel… IMC [also] looks to opportunistically acquire strategic and synergistic operations in Canada to secure premium flower supply for global operations and to sell into the high margin, ultra-premium Canada market.”
The analyst added, “The company is building and acquiring a global distribution network positioned to sell its brand portfolio of premium products globally. IMC shares represent a compelling valuation at 2.0x sales as a first mover in robust international cannabis markets.”
In light of these comments, Fortune rates IMCC a Buy along with an $8 price target. If the target is achieved, IMCC shares could provide ~198% returns over the next 12 months.
All in all, there are 3 recent analyst reviews on IMCC shares, and they are all in agreement that this is a stock to Buy, making the Strong Buy consensus rating unanimous. The stock is currently selling for $2.68 and its $8.08 average price target implies a robust 12-month upside of 201%. (See IMCC stock analysis on TipRanks)