You're probably not surprised a bit that Canadian marijuana stocks are hot again. Most of the stocks stank in the fourth quarter of 2018. It's been a much better story this year, though. At least a dozen Canadian marijuana stocks are up more than 50% year to date.
Three stocks, however, have sailed past the rest of the pack. Shares of Village Farms International (VFF 13.22%), Organigram Holdings (OGI 2.63%), and HEXO (HEXO) have skyrocketed 92% or more so far in 2019. Here's why they are the best of the year thus far and what could drive the stocks even higher.
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1. Village Farms
Village Farms is the biggest winner among Canadian marijuana stocks so far in 2019. And it isn't a close contest. Village Farms' share price is up a whopping 381% year to date. At one point, the stock had gained 404% for the year.
One factor behind Village Farms' great performance this year is that its stock is more visible and available to U.S. investors. In January, the company announced that it planned to list its shares on the Nasdaq. That goal became a reality in February.
Another catalyst came in early February with Ontario Cannabis Store selecting Pure Sunfarms to supply adult-use recreational cannabis products. Pure Sunfarms is a joint venture between Village Farms and Emerald Health Therapeutics. Village Farms CEO Michael DeGiglio said in the company's Q4 conference call that Pure Sunfarms should be able to produce 75,000 kilograms of cannabis on an annualized basis by the beginning of the third quarter this year.
Investors have also been excited about Village Farms' move into the U.S. hemp market. In March, Village Farms announced that it was partnering with Georgia-based Nature Crisp LLC, a part of large hemp grower Jennings Group, to produce hemp cannabidiol (CBD) in multiple U.S. states.
2. Organigram
Shares of Organigram have soared 102% so far this year. As was the case with Village Farms, there were several reasons for Organigram's impressive performance.
In January, the company announced a partnership with Canada's Smartest Kitchen to develop premium cannabis-infused chocolates. Organigram also established a long-term supply agreement for hemp-based CBD and signed a multiyear extraction agreement with Valens GroWorks for producing cannabis concentrates.
All three moves had one thing in common: They were key steps in Organigram's preparation for the expansion of Canada's adult-use recreational cannabis market anticipated for later this year. Currently, cannabis edibles, beverages, and concentrates aren't allowed. However, the Canadian government is working to finalize regulations for these products with a projected market launch in October 2019.
Organigram signed a letter of intent with Quebec in February to supply cannabis for the province's adult-use recreational market. This deal means that the company has distribution agreements in place with all 10 Canadian provinces. Thanks in part to its strong presence throughout Canada, Organigram is one of only three marijuana producers with rising profit projections over the near term.
3. HEXO
HEXO claims the No. 3 spot among Canadian marijuana stocks in year-to-date performance. Shares of the Ottawa-based company are up 92% so far in 2019.
Like Village Farms, HEXO benefited from added exposure to U.S. investors. In January, the company announced that its shares would begin trading on the NYSE American stock exchange. This move made HEXO the fifth marijuana stock to list on an NYSE exchange.
The biggest news for HEXO, though, was its announcement in March that it's acquiring Newstrike Brands. The deal will boost HEXO's annual production capacity to around 150,000 kilograms. It also will increase the number of provinces with which HEXO has supply agreements for the adult-use recreational market to eight.
HEXO's strongest market right now is in Quebec. In the quarter ending Jan. 31, 2019 -- HEXO's first full quarter of recreational pot sales -- the company generated 91% of its total revenue in the adult-use recreational market, with 84% of those sales coming from Quebec.
Looking ahead
All three of these marijuana stocks could soar even more through the rest of 2019. The Canadian adult-use recreational market is likely to pick up steam, especially with the expected launch of the edibles and concentrates market later this year.
However, there are also some potential potholes ahead (pun fully intended). Short-sellers have flocked to Village Farms, betting that the stock's year-to-date success won't be sustainable. HEXO has been one of the worst Canadian marijuana producers when it comes to diluting the value of its shares through stock offerings. It's possible, if not likely, that HEXO could keep up its diluting ways. Organigram and Village Farms could join in the party, too.
There's no guarantee that Village Farms, Organigram, and HEXO can keep their sizzling momentum going. Like in car and horse races, the early leaders don't always end up crossing the finish line first.
