This has been a truly groundbreaking year for the marijuana industry, and it was recently punctuated with the legalization of recreational cannabis in Canada. Breaking down nine decades of prohibition, Canada's legal weed industry appears ready to reap the rewards of what could be billions of dollars in added annual sales.
However, marijuana stocks simply couldn't live up to the euphoria in October. Despite adult-use pot being legalized in our neighbor to the north just over two weeks ago, most pot stocks were absolutely clobbered last month. A screen of the 33 largest and/or most popular marijuana stocks turned up just three that finished the month higher. Meanwhile, 27 of the 33 ended down by a double-digit percentage, with 19 losing at least 20% of their value. We have a word for that in the investing industry: "Yuck!"
The best pot stocks in October
But, as noted, there were three standouts that smoked their competition, so to speak. Let's take a closer look at the best marijuana stocks in October.
MedMen Enterprises: Up 29.2%
If there was a broad theme for the top-performing marijuana stocks last month, it'd be acquisitions. Companies that announced game-changing acquisitions in October tended to perform better than their peers.
The top marijuana stock in October was upscale retailer and grower MedMen Enterprises (NASDAQOTH:MMNFF), with a gain of just over 29%. MedMen announced an all-stock deal to buy privately held PharmaCann for $682 million in mid-October, which marks the largest U.S.-based cannabis deal in history.
The logistics of the deal are simple to understand. MedMen wants to grow its physical presence in legal U.S. markets, ergo acquiring PharmaCann boosts its number of licensed retail locations by 18, adds eight cultivation facilities, and doubles the number of states it'll be operating in to a cool dozen. As a reminder, interstate transport of cannabis isn't legal in the U.S., so grow facilities are needed in states where retail operations are held. The PharmaCann acquisition helps to further MedMen's efforts to be a vertically integrated retail operator in the United States.
MedMen also reported very strong top-line sales growth during the fourth quarter and full year. With 13 stores operational by the end of its fiscal year, MedMen reeled in $39.8 million in full-year sales, up close to 1,400% year over year.
Still, I'd caution investors that MedMen is a very risky bet given its need to spend heavily to boost its physical presence in the United States. This should result in years of ongoing losses -- its operating loss, before one-time items, was $112.3 million in fiscal 2018 -- as well as the possible need to regularly dilute existing shareholders via bought-deal offerings to raise capital.
MariMed: Up 18.9%
Surprise! It's MariMed (NASDAQOTH:MRMD), once again. The top-performing marijuana stock during the second quarter (by a long shot, I might add) turned in the second-best gain in October of just under 19%. Why, you ask? A late-month acquisition looks to have done most of the heavy lifting.
MariMed, which describes itself as a "multi-state cannabis organization that develops, owns and manages cannabis facilities and branded product lines," announced on Oct. 29 that it had finalized the acquisition of BSC Group in New Jersey. As a license and consulting firm, BSC Group could be a key cog should New Jersey move forward with a recreational pot initiative in the state. Not to mention, BSC Group's employees could further help MariMed strengthen its operations and branding efforts in other markets.
MariMed also appears to have received a bit of a boost from an announced investment in Sprout, a customer relationship management and marketing software company that caters to dispensaries and weed brands. Clearly, investors are pleased with the company's inorganic approach to growth, as well as its potentially diverse revenue stream.
But, like MedMen, a word of caution: Namely, this is a relatively thinly traded, over-the-counter-listed pot stock that's now sporting an $870 million market cap despite generating just a few million dollars in annual sales. It's probably going to continue losing money in the near term, which makes it even riskier than MedMen, in my view.
Origin House: Up 3.9%
Lastly, squeaking in with an October gain of almost 4% is Origin House (NASDAQOTH:ORHOF). If the name sounds unfamiliar, that's because this is the new name for the company formerly known as CannaRoyalty.
Origin House had a very quiet month compared with MedMen and MariMed, but it did close on its important acquisition of RVR Distribution for what amounts to 70,000 Class A shares, or 7 million shares of common stock (each Class A shares equates to 100 shares of common stock).
Origin House wants to gobble up as much distribution market share in California as possible, and RVR wound up generating $25.3 million in distribution-related revenue in 2017. When combined with its other owned distributor, Alta Supply, Origin House now has nearly $32 million in 2017 sales under its belt. As California's cannabis industry matures and new dispensaries are licensed, the importance of what few distributors are licensed will really come into focus, giving Origin House an opportunity to shine.
Unlike MedMen and MariMed, which aren't pot stocks that this investor particularly cares for, Origin House does catch my eye. Of course, patience is going to need to be a virtue with this -- and every -- marijuana stock. It'll take time for the industry to mature and supply and demand to be sorted out in California, meaning there will be plenty of speed bumps along the way. Yet, despite this warning, a bright future may lie ahead for Origin House in the Golden State.