Canadian marijuana stocks receive a lot of attention. That's understandable, since most of the marijuana businesses with the highest market caps are based in Canada. However, there are some stocks of U.S. companies that operate in the cannabis industry that could be interesting to investors.
One such stock is MariMed (NASDAQOTH:MRMD). Although MariMed's market cap of around $530 million isn't as big as several of the top Canadian marijuana growers, its stock ranked as the best-performing marijuana stock in the first half of 2018. Here are three things you need to know about what is still arguably the hottest marijuana stock on the market.
1. A unique business model
MariMed doesn't grow marijuana, but it does a lot to help others that do. The company helps marijuana growers in U.S. states that have legalized medical or recreational marijuana apply for licenses. It provides consulting services for designing and operating cannabis production facilities. It also offers clients other professional management services including administrative, accounting, human resources, and legal support.
So far, MariMed has built six facilities for producing medical cannabis in four states: Delaware, Illinois, Nevada, and Maryland. The company is also is close to completing construction of two additional facilities in Massachusetts. MariMed leases its facilities to clients who have secured the appropriate licensing from the states in which they operate.
In addition, MariMed has its own lineup of cannabis products. These products include cannabis-infused popcorn, mints, and fruit chews. MariMed licenses and distributes these products to legal medical marijuana dispensaries who sell the products to end customers.
2. A huge opportunity
How significant is the opportunity for MariMed? Consider that the U.S. marijuana market could reach $22 billion in sales by 2022. That's close to three times the U.S. marijuana market size in 2017.
One of the states in which MariMed is already active could present an especially attractive opportunity. Massachusetts legalized recreational marijuana this year. Arcview Market Research and BDS Analytics think that total marijuana spending in the state could reach $1.2 billion by 2022, making Massachusetts one of seven U.S. states with marijuana markets of $1 billion or more.
MariMed's business model should be relatively easy to replicate in states where it doesn't have current operations as well. The company's management team believes that there are only a few other potential rivals that provide the depth of services in multiple states that MariMed has. Even with some competition, MariMed thinks the overall market will grow rapidly enough enable multiple players to thrive.
3. A lot of risk
It's important for investors to understand the significant level of risk with buying MariMed. The company reported revenue of less than $6.1 million last year. It posted a net loss in 2017 of nearly $1.2 million and continues to lose money.
As of the end of the first quarter of 2018, MariMed had cash and cash equivalents of close to $410,000. The company's debt totals more than $15 million. MariMed's auditors have expressed in writing their doubt about the ability of the company to continue as a going concern. The bottom line is that MariMed must raise more cash pretty soon. That will probably either come from taking on more debt or issuing more shares.
Even if MariMed was in great financial shape, there are still some broader risks for the company. The sale of marijuana remains illegal at the federal level in the United States. Although President Trump has voiced support for legislation to keep the federal government from interfering in states that have legalized marijuana, there's no guarantee that any changes to existing federal laws will be made. That means the potential remains for a federal crackdown on marijuana-related businesses like MariMed.
Is MariMed a buy?
My investing style is way too conservative to buy a risky stock like MariMed. I'm not too worried about having the feds interfere with the company's business. However, high levels of debt and an unclear path to profitability rule this stock out for me.
That being said, I think it's possible that MariMed stock could continue to benefit from the expansion of the U.S. marijuana market. There should be plenty of smaller marijuana growers in need of the kinds of services that MariMed provides. And the potential market for its cannabis-infused products is increasing as more states legalize marijuana.
For now, though, my view is to watch this hot marijuana stock from the sidelines. There are plenty of other stocks that investors can buy with solid growth prospects and much lower risk.