Canada's Tilray (TLRY) has now surpassed Canopy Growth Corporation (CGC -0.66%) as the largest marijuana company in the world by market capitalization. The bizarre part is that Tilray's production capacity pales in comparison to Canopy's at present. As a result, Wall Street has Canopy's 2019 sales coming in at over $130 million higher than Tilray's under current projections. Tilray's stock, therefore, could be seriously overvalued, implying that cannabis investors might want to look for greener pastures moving forward.
With this theme in mind, I think marijuana investors might want to check out both MariMed (MRMD 0.90%) and The Green Organic Dutchman Holdings Ltd. (TGOD.F -11.24%) right now. While neither is an out-and-out bargain in the classic sense, they are both better values than Tilray at current share prices. Read on to find out more.
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A cannabis expert
The small-cap American company MariMed might not look like a vastly better buy than Tilray right now, but I think it will turn out to be a far superior long-term investment for a couple of reasons.
First, MariMed has the strategic advantage of being physically located in the most valuable pot market in the world: the United States. Legal pot sales in the U.S., after all, are expected to come in at over 10 times those of both Canada and Latin America, once federal prohibition ends.
MariMed is thus sitting on a gold mine. Although the coveted U.S. market might remain off-limits under the current administration, industry insiders widely believe that it's only a matter of time until prohibition at the federal level is finally shelved. A whopping 31 states have already voted to permit cannabis use for medical purposes, and 9 states allow the drug to be consumed recreationally. Put simply, the U.S. is edging closer and closer to full-scale decriminalization of the drug.
The second reason MariMed comes across as a stellar long-term buy is the fact that the company isn't wholly dependent on product sales for revenue. MariMed has built out a successful cannabis-oriented real estate and consulting business that should benefit tremendously from nationwide legalization. The take-home point is that MariMed has the know-how for getting the appropriate licenses to cultivate and distribute marijuana, and the expertise to provide the necessary training for would-be growers.
All that said, MariMed is going to require some patience from investors. There's no telling when the U.S. will finally lift the federal ban on pot, and MariMed's growth probably won't take flight until this seminal event occurs.
A better bargain
Like Tilray, shares of The Green Organic Dutchman have been soaring leading up to the legalization of marijuana for recreational purposes in Canada this month. Even so, the company's market cap still lags well behind its fellow Canadian pot grower.
TLRY market cap data by YCharts.
This valuation gap is certainly interesting, given that Tilray doesn't have a clear competitive advantage over The Green Organic Dutchman -- besides being a little ahead in terms of ramping up production, perhaps. But that advantage won't last long, since The Green Organic Dutchman has been busy building new production facilities. The company is thus slated to become Canada's fourth-largest grower sometime next year.
The Green Organic Dutchman has also expanded its international footprint substantially this year by signing deals with both Epican Medicinals in Jamaica and Queen Genetics/Knud Jepsen in Denmark. In short, Tilray and The Green Organic Dutchman aren't all that different from a competitive standpoint, despite their drastically different valuations.
If anything, The Green Organic Dutchman should be a far more attractive partner for either a beverage or big tobacco company, thanks to its far lower valuation. In other words, potential partners will have to invest considerably less to gain a bigger foothold in The Green Organic Dutchman than with Tilray. That doesn't mean that this company is destined to attract a deep-pocketed partner, but it is definitely in the running.
On the flip side, I think The Green Organic Dutchman and Tilray will both end up posting sizable losses next year due to the combination of falling product prices and an eventual supply glut in the Canadian market. But there's no doubt that these headwinds will have more of an impact on Tilray's valuation than on its Canadian competitor. As such, my view is that The Green Organic Dutchman is a much safer marijuana play than Tilray right now.
