Why Small Cannabis Stocks Matter – And Which Ones Deserve A Closer Look
Are the major cannabis players starting to lose their shine?
With seasoned cannabis investors, this may be the case. After all, with stocks such as Canopy Growth Corp (NYSE:CGC), Aphria Inc (OTC:APHQF), and OrganiGram Holdings Inc (OTC:OGRMF) all having delivered gains in excess of 1,000 percent over the past three years, one must consider how much higher these things can go.
In less than a month, legalization will take hold in Canada. And with all the enthusiasm and media coverage that comes with this, so too comes the conga line of “late-to-the-party” retail investors. This kind of thing can sometimes suggest the big money has already been made, and early investors are dumping their shares into the willing hands of those who think they just stumbled upon the next big thing.
Although there are still plenty of opportunities in the cannabis space, to suggest that those who are just now investing in the “Kings of Cannabis” are going to get rich right before Canada legalizes is, for lack of a better word, naive. In fact, many of those who were able to buy those cheap shares of Canopy Growth, Aphria, and OrganiGram three years ago, have since cashed in their chips and are now finding new, lesser-known cannabis stocks to invest in.
Small Companies, Big Returns?
Take Aleafia Health Inc (OTC:ALEAF), for instance. This is a company that runs the Canabo Medical Clinic, which is the largest network of medical cannabis clinics in Canada. It may not sound like the most exciting thing in the world, but the company treats more than 50,000 patients, is vertically-integrated and maintains its own licensed facilities. While most average investors have never heard of it, it’s been landing a lot of big deals that have gone completely under the radar.
Most recently, it was announced the Surruya family – one of the wealthiest families in Canada – ponied up $10 million for a piece of this operation. Then there was the recent deal that has Aleafia and Cronos Group Inc (NASDAQ:CRON) moving forward on a joint medical cannabis study designed to improve the management and treatment of insomnia and daytime sleepiness. Everyone knows about Cronos Group, but how many folks knew it was in bed with this little Canadian cannabis player in Canada?
If that’s not enough, Aleafia is also working with Tilray Inc (NASDAQ:TLRY) – one of the most successful cannabis IPOs ever – to study the effect on opioid use and quality of life in chronic pain patients when prescribed medical cannabis.
Aleafia recently signed a cannabis supply MOU with CannTrust Holdings Inc (OTC:CNTTF) for up to 15,000 kg next year, the stock was recently added to the largest cannabis ETF, Horizons Marijuana Life Sciences ETF (OTC:HMLSF), and in September it secured its sales license from Health Canada.
Aleafia is nowhere close to the magnitude of an operation such as Canopy Growth, Aphria, or Tilray. But take a look at how Aleafia has performed over the past month, in comparison to these major players.
It’s not about who’s the biggest player in the space. Nor is it about which stock is getting the most media coverage. It’s about which stock is going to deliver the biggest gains for investors. And in this case, just over the past month, Aleafia has been the best pick. It’s no wonder the Surruya family got an early piece of this action.
Other Small Players
Of course, Aleafia isn’t the only “smaller” cannabis player that’s fallen under the radar while representing a better opportunity for growth, compared to the major players.
In Canada, there’s Eve & Co Inc (OTC:EEVVF), which, on the surface, just looks like any other penny stock in the cannabis space. But while most investors have never heard of this company either, just a few weeks ago it was approved to sell cannabis to Ontario’s only retailer of adult-use cannabis.
Natural MedCo, which is owned by Eve & Co. is one of the smallest cannabis companies that’s been approved to sell cannabis in Ontario. To be sure, this is a very small name in a list that includes companies such as Canopy Growth, Aphria, and Aurora Cannabis (TSX:ACB). Eve & Co. has also entered into an MOU with the government of British Columbia for the distribution of cannabis. Today, while plenty of folks are chasing down overvalued stocks because they’re the most well-publicized, Eve & Co. is trading for less than 50 cents per share.
A Closer Look
It should also be noted the U.S. market is looking more and more like the Canadian market just three years ago, with only a handful of public companies vying for the pole position in this market – which is actually far more valuable than the Canadian market. Companies like MariMed Inc (OTC:MRMD), Liberty Health Sciences Inc (OTC:LHSIF) and iAnthus Capital Holdings Inc (OTC:ITHUF) have seen a steady increase in valuation that again, for many investors, has gone unnoticed because of all the focus on Canada.
The point of all this is simple: The devil is in the details. The big money has already likely been made in Canada, aside from some of the smaller Canadian cannabis players that have simply been glossed over, such as Aleafia and Eve & Co. The focus on the U.S. market is where investors will find, perhaps a bit more risk, but the opportunity for much bigger rewards.
Yes, Canopy Growth, Aphria and Tilray are the gatekeepers. But at this stage of the game, they are also unlikely the best options for growth. And at the end of the day, that’s what really matters.
Disclosure: The author owns shares of iAnthus Capital Holdings and Liberty Health Sciences.
Photo by Javier Hasse.
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