There’s a light at the tunnel for Canadian cannabis companies this week, the performance of companies like GreenStar Biosciences Corp. (CSE: GSTR)has helped restore investor confidence in the sector
The Montreal Hedge Fund BT Global Growth believes that the bottom has been established in the U.S. cannabis sector and that future growth is likely.
In the fund’s monthly financial letter published this week, its managers point out that even though U.S. cannabis stocks have declined by 20 to 40% since May. Recent quarterly results show a “dramatic increase” in financial performance. “Beyond our expectations for our favorite names,” we read.
BT Global’s preferred stocks in this sector include Green Thumb, Trulieve, Planet 13 and Curaleaf. The fund continues to short sell Canadian stocks, mainly due to the valuation gap and the “disappointing” execution of Canadian players. BT appreciates vertically integrated US companies in the supply chain (both producers and retailers). Margins could thus be “significantly” higher.
One other company worth noting is GreenStar Biosciences Corp. (CSE: GSTR)that is in the process of building a portfolio of the most promising American cannabis companies. Their partner tenant company, Cowlitz, is a producer, marketer and distributor of high quality cannabis products at affordable costs. With GreenStar’s support, they became a market leader in their home Washington state.
Cowlitz consistently records quarterly revenue of $4 million and at the end of last year (2018) reported a revenue of $14.6 million. It is a significant achievement in just five years of operations. They stand out in the local market because no other competitor can offer cannabis with higher quality or THC level and sell them at low cost at the same time. Cowlitz utilized a cultivation technology which was made available to them thanks to GreenStar, and which allowed them to stay ahead of the competition.
Couche-Tard, the company that has recently invested in the cannabis sector, is doing well on the market too. Don’t be startled when you see their stock trading at about $40 on the Toronto Stock Exchange. The two-for-one stock split, announced at the beginning of the month, becomes effective when the markets open. The share price has risen by about 20% since the beginning of the year, but has fallen by almost 10% since its peak in June.
Couche-Tard is the “perfect example” of the stock to be held in a portfolio, according to the managers of the firm Rating 100: “One or two stocks of this type will compensate several times those that do not do well,” he said in a commentary written for the firm’s clients.
“The recent drop in the stock, probably caused by the sudden rebound in oil prices that could put some short-term pressure on the fuel margin, creates a great opportunity for investors to buy a quality company at a reasonable price”.
If the fuel margin is volatile from quarter to quarter and causes greater variability in quarterly profits, electrification of transport is a challenge, it was noted. “However, this change will take years to have a significant impact on operations and executives will have time to adjust.”