The marijuana industry produced about as bifurcated a year as investors could have imagined in 2018. By the time the curtain closed, validity had been gained like never before, but pot stocks had been absolutely leveled.
On the bright side, Canada became the first industrialized country in the world to legalize recreational pot in October, with a handful of U.S. states choosing to give the green light to cannabis in some capacity in 2018. The U.S. Food and Drug Administration also approved its very first cannabis-derived drug. In other words, marijuana firmly shed its taboo label and became a legitimate business model last year.
Unfortunately, that didn't translate into gains for investors. Although pot stock shareholders were rewarded nicely in 2016 and 2017, most marijuana stocks shed 30%, 40%, or even more of their value, in 2018.
These pot stocks are expected to quintuple their sales (at minimum) in 2019
As we look at the year that lies ahead, few factors are going to be more important to pot stocks than their operating results -- and that all starts with sales growth. Understandably, this industry is starting from a very small base of sales, so we should rightly expect strong double- and triple-digit percentage growth in 2019. But among the dozens of publicly traded marijuana stocks, seven stand out as having the fastest sales growth potential of them all.
Excluding companies with a sub-$200 million market cap, those with no analyst coverage, and those with less than $2 million in base revenue in 2017 (so we can avoid absurd year-over-year sales percentage increases), the following marijuana stocks, listed in ascending order, look to grow their fiscal 2019 sales by a minimum of 400%!
Aphria: Estimated sales growth of 407%
Arguably the most troubled of all the pot stocks on this list, Aphria (APHA) is projected to grow its sales by 407% in fiscal 2019.
This rapid rise in revenue can be attributed to the completion of its organic Aphria One project and partnered Aphria Diamond project sometime this month, according to previous management commentary. When finished, these key grow sites are expected to yield in the neighborhood of 100,000 and 120,000 kilograms of cannabis annually, when operating at full capacity. Aphria is expected to slot in as the No. 3 grower by peak production, with 255,000 kilograms of weed per year.
Of course, trust, not capacity expansion, will be a bigger hurdle for Aphria to overcome in 2019. In December, Aphria's stock was clobbered following a report from short-side firm Quintessential Capital Management that it had grossly overpaid for what are essentially "worthless" assets in Latin America. Despite Aphria refuting these claims, it could take some time to clear the air, and for Aphria to regain the trust of Wall Street and investors.
The Supreme Cannabis Company: Estimated sales growth of 440%
A couple of the fastest-growing pot stocks on this list happen to be small caps, none of which is smaller than The Supreme Cannabis Company (SPRWF).
Like Aphria above, Supreme Cannabis Co. is aiming to bring a lot of new production online this year. The company's pride and joy is its 7ACRES facility, which spans 342,000 square feet and should yield around 50,000 kilograms per year when at full capacity. Supreme Cannabis has been busy securing supply deals with growers and provinces, launching recreational premium cannabis brands (the self-named 7ACRES brand), and diversifying its product line to include high-margin oils, in the wake of Canada's groundbreaking legalization in October.
Since Supreme Cannabis Co. is working with a reasonably small amount of square footage to develop for harvesting compared to its peers, the company's near-term success will really come down to cultivation licensing approval and sales permits from Health Canada.
Cronos Group: Estimated sales growth of 447%
Check out the latest Cronos Group earnings call transcript.
Noticing a theme here? Cannabis grower, cannabis grower, and yes, another cannabis grower with Cronos Group (CRON -1.04%), which is expected to increase its year-over-year sales by close to 450%.
To date, Cronos Group has been relying on relatively minimal production from Peace Naturals and Original BC. At full capacity, Peace Naturals could eventually add around 40,000 kilograms a year, with Original BC adding some icing on the top. The company's real jewel is its July 2018-announced joint venture with a group of investors to build an 850,000-square-foot facility capable of 70,000 kilograms of weed per year. This'll help push Cronos Group over the 100,000 kilogram barrier and (likely) make it a top-10 producer. This facility is expected to be complete by the midpoint of this year.
Cronos also recently secured a $1.8 billion equity investment from tobacco company Altria, which worked out to a 45% stake in the company. It wouldn't be surprising to see these two go to work on developing new products for the cannabis community in the months that lie ahead.
Aurora Cannabis: Estimated sales growth of 596%
It probably comes as no surprise that the company expected to lead all growers in annual output, Aurora Cannabis (ACB -0.34%), is estimated by Wall Street to see a nearly 600% increase in year-over-year sales in 2019.
According to Aurora's most recent update, the company was on pace for 70,000 kilograms of annual run rate in November, and management had projected 100,000 kilograms of run rate by the end of calendar 2018, and more than 150,000 kilograms by the end of its fiscal year (June 30, 2019). That's a rapid rise in production capacity brought on by organic and inorganic growth.
Organically, Aurora will see the Aurora Sky facility ramp up harvesting, with construction continuing on its massive Medicine Hat, Alberta grow farm known as Aurora Sun. Inorganically, Aurora acquired CanniMed Therapeutics, MedReleaf, and ICC Labs last year, and will continue working on existing projects for each of these now-owned assets. At peak production, 700,000 kilograms per year isn't out of the question for Aurora Cannabis.
OrganiGram Holdings: Estimated sales growth of 891%
The only major Atlantic-based pot grower in Canada is also expected to see significant sales growth in fiscal 2019. According to Wall Street's consensus, OrganiGram Holdings (OGI -1.54%) should see revenue rise 891% from the previous year.
OrganiGram's key asset is its Moncton, New Brunswick facility, which'll span 490,000 square feet of growing space and employ the company's three-tiered growing system. This growing method should allow OrganiGram's yield per square foot to top pretty much all of its peers, which is ultimately good news for the company's costs. At peak capacity, OrganiGram expects to produce 113,000 kilograms per year, placing it among the 10-largest producers in Canada.
Next year, OrganiGram has forecast the completion of its three-stage, phase 4 expansion of the Moncton facility, with these projects being completed in April, August, and October, respectively. Assuming the company receives the appropriate cultivation and sales licenses, it should see sales soar.
GW Pharmaceuticals: Estimated sales growth of 930%
Check out the latest GW Pharmaceuticals earnings call transcript.
The only marijuana stock on this list that isn't a grower is cannabinoid drugmaker GW Pharmaceuticals (GWPH), which should see its sales skyrocket by more than 900% in fiscal 2019.
The reason for the surge is the November launch of GW Pharmaceuticals' lead drug, Epidiolex, which became the first cannabis-derived drug to gain approval by the Food and Drug Administration. Designed to treat two rare types of childhood-onset epilepsy, cannabidiol-based Epidiolex ran circles around the placebo in multiple late-stage trials in terms of reducing seizure frequency relative to baseline. With GW Pharmaceuticals only generating minimal sales from Sativex, a cannabinoid-based therapy approved in around two dozen countries outside the U.S. to treat spasticity associated with multiple sclerosis, the launch of Epidiolex and its $32,500-per-year list price should see revenue rocket higher.
However, investors should note that the company's success may be short-lived. A competing experimental therapy from Zogenix (ZX008) has demonstrated plenty of promise, and it's likely to push GW Pharmaceuticals for market share, if approved.
HEXO: Estimated sales growth of 2,009%
However, taking the cake in terms 2019 sales growth is Quebec-based HEXO (HEXO). Wall Street will be looking for the cannabis producer to top 2,000% year-over-year sales growth.
Why such impressive sales growth? To begin with, HEXO has long-expected that its 1-million-square-foot expansion adjacent to its existing Gatineau facility would be complete by December 2018. Again, license permitting, HEXO should be ahead of the game on completing its capacity expansion projects. For context, HEXO should be a top-10 producer with 108,000 kilograms in peak annual output.
Secondly, HEXO signed a very lucrative five-year supply deal with Quebec's province-run cannabis regulatory entity totaling an aggregate of 200,000 kilograms. HEXO's commitments to Quebec increase with each passing year, and should provide a nice lift on the company's annual sales.
And lastly, HEXO formed a joint venture with Molson Coors Brewing Co. on Aug. 1 that'll see the duo working on cannabis-infused beverages. HEXO's unique knowledge of the cannabis industry, and Molson Coors' marketing prowess and deep pockets, may begin to yield positive results in the sales column in 2019.