In part 1, I narrowed 29 cannabis stocks down to 11 companies with less than $400 million in market cap and a price-to-sales (P/S) of 5 or less. For part 2, I’m going to eliminate what I feel deserve low P/S ratios so we have a working list of the best cannabis stocks that have a chance to become the next Jushi and return 549%.
Here’s an updated list with more specific P/S ratios:
- C21 Investments: 5.6
- Indus Holdings: 5.5
- MariMed: 5
- MedMen: 4.4
- Vext Science: 4
- Cansortium: 3.7
- Halo Collective: 3.3
- Greenlane Holdings: 2.1
- Tilt Holdings: 1.9
- Hollister Biosciences: 1.9
- Harborside: 1.7
The key now is to dig into each of the companies and eliminate the stocks that have a low price-to-sales (P/S) for valid reasons. I’m not saying these stocks will perform badly, they should do well in 2020. But we are looking not looking to just “do well”, we are looking for the next 549% return.
Greenlane Holdings
The first stock I’m removing from the list is Greenlane Holdings for the following reasons:
- – 20% year-over-year revenue growth with only a 10% quarter-over-quarter revenue growth. It’s best to avoid anyone in a growth sector that has declining Y/Y revenue.
- Because Greenlane is a distributor, they have gross profits of 7% and negative EBITDA margins.
- P/S of 2.1 may be deserved due to so much revenue coming from the vape business, losing money, and tiny gross margins.
Halo Collective
The second stock I’m removing from the list is Halo Collective for the following reasons:
- – 4% year-over-year revenue growth with only a 30% quarter-over-quarter revenue growth. The industry is averaging 44% Q/Q revenue growth. Again, it’s best to avoid anyone in a growth sector that has declining Y/Y revenue.
- Halo has diluted shareholders and now has 757 million shares, more shares than any other company on my Cannabis Investor Portal. With so many shares outstanding, it will be impossible to grow 549% in 12 months.
- The company is going through a transition with a recent name change and ticker change.
C21 Investments
The third stock I’m removing from the list is C21 Investments for the following reasons:
- – 10% year-over-year revenue growth with only a 1% quarter-over-quarter revenue growth. The industry is averaging 44% Q/Q revenue growth. Again, it’s best to avoid anyone in a growth sector that has declining Y/Y revenue and very weak Q/Q revenue growth.
- C21 Investments is limited to two states, Nevada and Oregon. The company is more likely to get acquired for a nice premium, but not grow 549% organically.
Indus Holdings
The fourth stock I’m removing from the list is Indus Holdings for the following reasons:
- Indus Holdings is a California only business. While California is the largest cannabis market of any U.S. state, it is also the most competitive and Indus Holdings doesn’t have the capital to compete on a large scale. For example, per Indus Holdings’ investor deck, they have $32 million in cash, compared to TPCO Holdings (Jay Z is part of) has $300 million and they are also primarily focused on California. Curaleaf, Cresco Labs, Terrascend, Columbia Care, Jushi and many other larger, better-funded MSO’s are competing in the state.
- Indus Holdings is more likely to be acquired at a nice premium than see a 549% return organically.
MedMen
MedMen has alredy grown 500% in the past week and that is part of the reason it’s the fifth stock I’m removing from the list. Also for the following reasons, I will not consider it:
- The recent 500% gain is due to being targeted by the Reddit Wall Street Bets community, so we are already starting at a premium. It already has been the next Jushi
- MedMen has diluted a lot and has 650 million shares. They had 46 million shares in 2018.
- – 19% year-over-year revenue growth with only a 31% quarter-over-quarter revenue growth. The industry is averaging 44% Q/Q revenue growth. Again, it’s best to avoid anyone in a growth sector that has declining Y/Y revenue and very weak Q/Q revenue growth.
- Per Medmen’s last earnings report, they have $10 million in cash with a total of $47 million in current assets but has $151 million in current liabilities. Since the earnings report, the company has been moving aggressively to restructure debt.
- With massive debt and diluted shares, there is no way MedMen is the next Jushi.
- Jushi performed like Jushi purely based on a short squeeze and is very risky at this price.
Now that we’ve removed five of the 11 companies, here is what remains and feel like could be the next Jushi:
- MariMed: 5
- Cansortium: 3.7
- Vext Science: 4
- Harborside: 1.7
- Tilt Holdings: 1.9
- Hollister Biosciences: 1.9
In part 3, I will examine each company in detail. Stay tuned!
