Few industries offer the excitement and long-term growth potential of the legal marijuana industry. After generating $12.2 billion in global sales in 2018, worldwide cannabis sales are expected to blossom to more than $31 billion by 2022, and hit $50 billion (or higher) by the end of the next decade. That’s a compound annual growth rate of about 12.5% over the next 12 years, and this is a generally conservative estimate.
The reality is that these revenue dollars have to wind up somewhere, and with $50 billion on the line, it’s pretty clear there will be at least a handful of long-term winners. Of course, identifying those winners with concrete accuracy in any high-growth industry is challenging.
Since 2016, most marijuana stock valuations have ascended to the heavens, removing the allure of buying pot stocks. Companies like Cronos Group, which sports a $5.2 billion market cap, is only capable of perhaps 120,000 kilos of peak production, and is valued at north of 210 times forward earnings. Similarly, Aurora Cannabis, Canada’s projected leading producer at 780,000 kilos a year at peak capacity, may not even be profitable in fiscal 2020 due to expansion costs. Yet it’s lugging around an $8.5 billion valuation.
In other words, it’s difficult to get good value for your money in an extremely hyped industry. However, there is one company that offers a pretty insane value proposition, but also comes with its fair share of risks. In terms of bang for your buck, it’s really difficult to top Aleafia Health(NASDAQOTH:ALEAF).
This pot stock is the best bang for your buck
Haven’t heard of Aleafia Health? Don’t be ashamed. I’d bet there are a lot of investors that have never heard of Aleafia Health before, and that’s a big reason why it’s been able to fly under the radar — and keep a reasonable valuation — for so long.
Rather than simply growing marijuana and trying to out-produce its peers, Aleafia has been first and foremost focused on operating its network of Canabo medical cannabis clinics. The cannabis clinic model allows Aleafia to prescribe marijuana to medical patients, while at the same time keeping these patients loyal to the company’s vertically grown supply. This is a good thingconsidering that medical marijuana patients tend to use pot products more regularly, purchase product more often, and are more likely to consume higher-margin alternative pot products relative to adult-use consumers. Presumably, this should yield higher operating margins than its peers.
However, things have gotten a lot more exciting over the last five weeks for Aleafia Health. Just over a month ago, Aleafia Health completed a transformative all-stock acquisition of Emblem, which has a similar medical clinic and vertically integrated production and processing model. The combination of the two companies increased their total medical clinic presence to 40, as well as upped the number of patients treated to date to approximately 60,000.
Furthermore, it combines Aleafia Health’s 98,000 kilos in peak production capacity when operating fully with the 40,000 kilos that Emblem can bring to the table. At 138,000 kilos of peak annual output, Aleafia Health, despite only being secondarily focused on its growing operations, could be…
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