Becoming a marijuana millionaire sounds pretty appealing, doesn't it? Global marijuana markets are booming. Marijuana stocks are hot. And one of the hottest right now is OrganiGram Holdings (OGRMF 0.66%). Its shares have soared around 45% so far in 2019.
But could OrganiGram really be a millionaire-maker stock? Let's look at what it would take.
Image source: Getty Images.
Crunching the numbers
The achievability of a goal depends on how far away the goal is. For example, even first-graders can slam dunk a basketball when the goal is only 4 feet high. Similarly, you could probably make $1 million pretty easily by buying OrganiGram if you had just a little under $1 million lying around to invest in the stock.
Another important factor in making a goal happen is the amount of time you have. If you could live as long as Methuselah, your chances of becoming a millionaire with OrganiGram would probably be reasonably good.
I'm going to assume you're not already a near-millionaire and that you won't live for 969 years. Instead, let's say you have $10,000 to invest in a stock and an investing horizon of 15 years. That gives us solid parameters to use in determining whether OrganiGram could realistically be a millionaire-maker stock.
To turn a $10,000 initial investment into $1 million requires a 100-fold return. OrganiGram's market cap currently stands at around $660 million, so that means the company would need to grow to a market cap of roughly $66 billion over the next 15 years. The marijuana producer would deliver a compound annual growth rate of nearly 36% during that period.
Let's use a price-to-sales (P/S) ratio of 5, which is close to the midpoint between the average P/S ratio for the tobacco industry and the multiple for the alcoholic beverage industry -- both of which are similar in some respects to the cannabis industry. This P/S ratio means that to reach a market cap of $66 billion, OrganiGram would need to rack up annual sales of $13.2 billion within the next 15 years.
Could OrganiGram do it?
Arcview Market Research and BDS Analytics project that total worldwide legal marijuana sales in 2019 will be around $18 billion. The two research companies think the total will soar to $32 billion by 2022. But just how big could the global marijuana market be 15 years from now?
You might have heard marijuana executives mention that the current global marijuana market is $150 billion. This figure stems from a United Nations report and includes both legal and illegal sales of cannabis. But with increasingly more countries legalizing medical marijuana and a few also allowing legal recreational marijuana, the total addressable market for OrganiGram and its peers is almost sure to expand rapidly. And the UN number doesn't include new markets for cannabis-infused beverages and other products.
Constellation Brands did its own number-crunching before investing $4 billion in Canopy Growth. The big alcoholic-beverage maker estimated that the addressable retail cannabis market could top $230 billion within the next 15 years.
If Constellation's projections are right, OrganiGram would need to capture a little under 6% of the global marijuana market. The company probably couldn't deliver on that goal anytime soon, though. OrganiGram has less than 5% of the total production capacity projected for the 10 biggest marijuana producers.
However, it's not out of the question that OrganiGram could boost its production capacity enough over the next few years. I've viewed OrganiGram as a dark-horse candidate for landing a deal with a big partner outside the cannabis industry. If that happened, the company's chances of expanding its capacity and international presence enough to capture nearly 6% of the global marijuana market would improve.
Check out the latest earnings call transcripts for companies we cover.
Better questions
As the numbers we've just seen indicate, there are definitely significant hurdles to overcome. Also, those numbers depend on several key assumptions that might not pan out -- especially the must-have that the U.S. changes federal marijuana laws in the near future.
I think it's possible that OrganiGram could be a millionaire-maker stock. However, the odds are higher that it won't happen.
The best question to ask isn't whether OrganiGram can be a millionaire-maker stock. Instead, I suggest asking two other questions:
- Can OrganiGram deliver strong long-term returns?
- Are there stocks that could be even bigger winners than OrganiGram?
I think the answer to both of these questions is "yes."
