As the U.S. cannabis industry has evolved over the past few years, so has the market for publicly-traded cannabis stocks. In 2014, very few publicly-traded companies were reporting substantial revenue. Now, dozens are on track to report annual revenue of at least $1mm. Most of these are ancillary, but there are some publicly-traded companies that also cultivate, process or dispense cannabis as well that are generating revenue.
As companies have begun to report revenue, investors can now judge cannabis stocks on this metric. I looked at the entire universe of publicly-traded cannabis stocks to pull out the leading revenue generators. Here are the criteria I used:
- SEC filer
- U.S. based
- Primary focus is cannabis industry
- >$2.5mm sales in the most recent quarter
Here are the names that met the criteria listed alphabetically:
CV Sciences (OTC: CVSI), which was formerly CannaVest, is a leading producer of CBD from industrial hemp, which is the source of its revenue, and is also developing a chewing gum with CBD and nicotine for eventual submission to the FDA. Q1 sales of $3.76mm grew about 57% from a year ago as the company produced an operating loss of $3.65mm but generated positive operating cash flow of $26K. The company reported 89mm shares outstanding at May 3, and my adjusted share-count is the same, as all options and warrants are out-of-the-money. Investors should be aware that the company has convertible debt, which isn’t factored into my adjusted share-count. CVSI reported equity of $11.7mm, including $6.65mm of goodwill and intangibles.
GrowGeneration (OTC: GRWG) operates hydroponics stores serving cultivators in California, Colorado, Nevada and Washington. The company reported Q1 sales of $2.58mm, up more than 67% from a year ago and up 18% on a same-store basis. The operating loss was $282K as the company used $978K to fund operations, including a $943K build in inventory. The company reported 13.49mm shares outstanding as of May 15, and my adjusted share-count takes account options and warrants as well as shares sold at $2 after the quarter ended. GRWG reported equity of $5.4mm, including $0.5mm of goodwill and intangibles.
Kush Bottles (OTC: KSHB) is a compliant packaging solutions provider operating in many markets. The company reported FY17-Q2 sales of $2.97mm, up 65% from a year ago (and YTD sales of $5.44mm, up 55%). The operating income was $3619, with the company using $38K to fund its operations. The company reported 50.19mm shares as of April 11, but my adjusted share-count factors in options as well as an acquisition reported after the quarter. KSHB reported equity of $7.85mm, including goodwill of $2.38mm.
Solis Tek (OTC: SLTK), a provider of lighting equipment and nutrients to the cannabis industry, reported Q1 sales of $2.9mm, up 12% from a year ago. It reported an operating loss of $3.73mm, including stock compensation charges of $3.76mm, as it used $432K to fund operations. The company reported 36.59mm shares outstanding as of May 8, and my adjusted share-count factors in options. SLTK reported equity of $1.72mm.
Terra Tech (OTC: TRTC) operates a vertically integrated cannabis operation in Oakland and four dispensaries in Nevada. The company reported Q1 sales of $6.82mm, with $5.89mm from its cannabis operations (compared to just $130K a year ago, when it was solely selling IVXX branded products in California) and $917K from the sale of herbs and produce (Edible Garden). It reported a loss from operations of $6.03mm and used $3.29mm to fund operations during the quarter. The company reported 586.7mm shares outstanding as of May 5, and my adjusted share-count factors in warrants, options and convertible shares. Investors should be aware that the company has convertible debt, which isn’t factored into my adjusted share-count. TRTC reported equity of $49.77mm, including goodwill and intangibles of $52.12mm.
As I mentioned, the focus of this article was companies that are operating in the U.S., but investors looking for publicly-traded companies that are generating at least $2.5mm of quarterly revenue outside of the U.S., 5 Canadian LPs meet this criteria: Aphria (TSX: APH) (OTC: APHQF), Aurora Cannabis (TSXV: ACB) (OTC: ACBFF), CanniMed Therapeutics (TSX: CMED) OTC: CMMDF), Canopy Growth (TSX: WEED) (OTC: TWMJF) and MedReleaf (TSX: LEAF).
Revenue is a great criterion, but it’s neither necessary nor sufficient in terms of assessing a stock. For example, GW Pharma (NASDAQ: GWPH) doesn’t meet the revenue criterion, as its sales in FY17-Q2 ending 3/31 were $2.0mm. Still, an investment in the stock may be justified, as approval of Epidiolex could produce significant sales in the future. At the same time, a company with a lot of revenue may not be a great investment. Some factors potentially include the revenue being in declining growth or highly unprofitable.
With the caveats that a lack of revenue or an abundance aren’t the only factors one should consider when evaluating cannabis stocks, I do believe that investors following the cannabis industry should pay attention to sales. I have shared the names that appear on track to generate sales in excess of $10mm in calendar 2017, and I expect this list to be a lot bigger a year from now, as there are many companies that are close.
Disclosure: I do not hold positions in any of the stocks mentioned, though several are included in one or more model portfolios at 420 Investor. New Cannabis Ventures provides “Investor Dashboards” for several of the companies mentioned in this article.
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