If it feels as if marijuana stocks can do no wrong of late, you'd be right. Since the year began, the Horizons Marijuana Life Sciences ETF, the first-ever cannabis exchange-traded fund in Canada, has risen by 60%. Although gains in February were considerably more subdued relative to January, this popular ETF still tacked on an 8% gain last month.
Among individual pot stocks, things weren't nearly as bullish in February as they were in January, when you could have seemingly thrown a dart with a blindfold on and made money. Of the 50 marijuana stocks I screened, 24 fell last month, with 26 advancing. That's a pretty even distribution.
However, a handful of advancers did stand out from the crowd. In total, five pot stocks rose by at least 21%, with some galloping higher by four times this amount, during the month of February. Here's a look at what supercharged February's best marijuana stocks.
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Village Farms International: up 85%
Forget about finding any brand-name marijuana stocks on this month's list of top performers. Rather, Village Farms International (VFF 1.82%) led all pot stocks in February with an 85% gain.
Known best as being a relatively low-margin vegetable grower, Village Farms International got its foot in the door in 2017 when it and Emerald Health Therapeutics formed a joint venture known as Pure Sunfarms. Given that Village Farms already had vegetable-growing greenhouses in British Columbia, the joint venture would allow for Emerald Health to use its marijuana industry expertise to retrofit a little over 1 million square feet of existing grow space for cannabis production. In doing so, it should save the duo time and money, eventually yielding north of 75,000 kilos a year in production, when at full capacity.
Last month, investors received word that roughly 80% of the 1.03 million square feet being devoted to growing cannabis at Pure Sunfarms is now licensed by Health Canada, with the remainder expected to be licensed before the year is over. Pure Sunfarms also secured a supply agreement with the Ontario Cannabis Store, the joint venture's first provincial supply deal.
But the biggest news of all might just be Village Farms' uplisting from the over-the-counter (OTC) exchange to the Nasdaq. As one of only nine weed stocks to be listed on a major U.S. exchange, Village Farms has greatly improved its visibility and is enhancing the validity of the cannabis business model.
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Insys Therapeutics: up 84%
Sometimes it's readily apparent why a stock rallied. In other instances, such as with Insys Therapeutics (INSY +0.00%), you really need to dig into the weeds. Insys, which gets its association to marijuana stocks through its Food and Drug Administration-approved drug Syndros, an oral dronabinol solution for the treatment of chemotherapy-induced nausea and vomiting, appears to have rocketed 84% higher in February on the heels of what could be a large short squeeze.
As of Jan. 30, 2019, 8.5 million shares of stock, close to a third of its float, was held by short sellers (i.e., people who are betting on Insys' stock to go down). Since short-sellers need to borrow money from their brokerage to bet against a stock, and gains are limited to 100%, a rapid rise in a heavily shorted stock can lead to a stampede of pessimists looking for the exit. This pessimist exodus, which requires short-sellers to effectively buy stock to cover their short position, can lead to even more upside, which is probably what we saw in February.
But does Insys deserve this upside? To be blunt, no. These gains should be fleeting with sales of the company's lead drug Subsys still in freefall following a PR disaster, and Syndros delivering only $2.6 million in sales through the first nine months of fiscal 2018. Mind you, Syndros was believed to be a $200 million-a-year drug at its peak. Now looking like a flop, Insys Therapeutics is a pot stock you'll want to avoid.
Check out the latest earnings call transcripts for the companies we cover.
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Innovative Industrial Properties: up 25%
Marijuana real estate investment trust Innovative Industrial Properties (IIPR 3.76%) is another stock that's had itself a blazing hot start to 2019. Up more than 70% year-to-date, it gained 25% in February, locking itself in as the industry's third-best performer.
Possibly the biggest catalyst last month came on Feb. 8, which is when the company announced that it was acquiring 43,000 square feet of industrial space in Sacramento, California for $6.7 million, with $4.8 million in additional reimbursements set aside for development of an existing building on the site. This property, the 12th in Innovative Industrial Properties' portfolio, marks its first entrance into California, the most lucrative weed market in the U.S., by sales. IIP, as the company is also known, now owns cultivation and/or processing facilities in 10 states.
Another notable catalyst, announced on Valentine's Day, was that Innovative Industrial Properties would be added to the S&P SmallCap 600 Index. Although we're not exactly talking about a widely followed index in the same sense as the Dow Jones Industrial Average or S&P 500, index funds that track the S&P SmallCap 600 will now be required to purchase shares in Innovative Industrial Properties, thus helping to lift its share price.
As one of the few profitable cannabis pure-plays, and the only one to pay a dividend, it's not surprising to see IIP doing so well.
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CannTrust Holdings: up 22%
Ontario-based CannTrust Holdings (CTST +0.00%), which is unique in its use of hydroponic cannabis production at the Niagara and Vaughan facilities – i.e., growing plants in a nutrient-rich water solvent instead of soil -- had itself another strong month in February.
Arguably the biggest lift for CannTrust came later in the month, when it, like Village Farms, made the move from the OTC exchange to a major U.S. exchange. In this instance, the New York Stock Exchange. With much better visibility and higher average daily trading volume on the NYSE, relative to the OTC exchange, CannTrust has had little trouble attracting optimistic investors of late. Remember, this is a company that anticipates producing in excess of 100,000 kilos a year when at full production.
CannTrust also received a late-month boost from investment bank Jefferies, which initiated coverage on nine pot stocks. Of the nine, five were given "buy" ratings, one of which was CannTrust. Covering analyst Owen Bennett put a target price of $11.41 on CannTrust, suggesting that the stock had upside of up to 24%. Even though analyst ratings tend to have only a short-term impact on a company's share price, the impact was clearly positive here.
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Cresco Labs: up 21%
Rounding out February's best marijuana stocks is vertically integrated multistate cannabis company Cresco Labs (CRLBF +0.54%). Cresco Labs, which has only been a public company since early December, made waves in February with a 21% gain.
Part of the excitement is tied to Cresco opening two dispensaries within a one-week stretch. On Feb. 19, the company announced the opening of the Hope Heal Health (HHH) dispensary in Bristol County, Massachusetts. Cresco entered into an agreement to acquire HHH late last year. Meanwhile, on Feb. 26, it opened its third CY+ branded dispensary in Pennsylvania – this time near the Pittsburgh metro area. Although cannabis dispensaries typically have significant upfront costs, they do lead to rapid revenue growth and help with brand recognition.
The company also announced the formation of a new subsidiary, known as Well Beings, that'll focus on high-quality hemp-derived cannabidiol wellness products which, following the passage of the Farm Bill in December, are legal in all 50 states. With Well Beings have its own unique product line, Cresco Labs has essentially thrown its hat in the ring in an attempt to claim its share of rapidly growing CBD sales.
