Marijuana isn't just another growth industry. It has the potential to be a once-in-a-generation growth opportunity for patient investors who have a keen eye for this fast-paced industry. Between 2018 and 2030, various Wall Street firms have called for a fourfold to sixfold increase in global sales, which should be more than enough to create some big-time winners in this space.
The big question, as always, is: What marijuana stocks to buy? Typically, investors have gravitated toward growers, since they'll most directly benefit from an uptick in medical and recreational demand. And among the many growers, it's pot stocks like Canopy Growth, Aurora Cannabis, and Cronos Group that garner the most attention. These also happen to be the three largest cannabis stocks by market cap, so this shouldn't be that big a surprise.
But the thing about most growers is that it's hard to differentiate between them. Sure, some may have more provincial supply deals than others -- or, in Aurora's case, be able to outproduce every other weed grower. However, there isn't a truly unique factor that allows them to stand out.
That's not the case for the following three marijuana stocks, which are breaking the mold and doing things a bit differently.
Ontario-based CannTrust Holdings (CNTTQ) is angling to be a top-five and perhaps even top-three grower, but that'll depend on just how much cannabis is produced from the up to 200 acres of outdoor growing space it plans to buy and develop. The company is currently guiding for 200,000 kilos to 300,000 kilos per year when at full operation. But, as noted, it's not CannTrust's sheer output that makes it unique. Rather, it's the company's growing methods that allow it to stand out.
At CannTrust's flagship Niagara campus (840,000 square feet when complete), as well as its much smaller Vaughan facility (60,000 square feet of growing space), the company is relying on hydroponic growing methods. Hydroponics involves growing plants in a nutrient-rich water solvent as opposed to soil. It's not necessarily a higher-yield form of growing, but when there's nearby access to cheap sources of water and electricity, which Niagara certainly has, it can lead to low-cost production. In CannTrust's case, its combined 900,000 square feet of cultivation devoted to hydroponics should produce 100,000 kilos a year, or 111 grams per square foot, which looks to be modestly above the industry average. So it's really the best of both worlds.
Then there's the company's outdoor-grown cannabis. Outdoor marijuana isn't often going to be of exceptional quality, but it does serve an intriguing purpose for CannTrust. Although the company didn't mention a specific figure, it plans to utilize a good portion of this outdoor grow for extraction purposes. The extracts can be used to make edibles, concentrates, infused beverages, topicals, and a whole line of derivative products that'll be legalized by no later than mid-October in Canada. These derivatives carry much juicier margins than traditional dried flower, making CannTrust a good bet to be among the top producers of alternative cannabis consumption products.
Depending on how things shake out, OrganiGram Holdings (OGI -3.06%) will likely slide in right around No. 10 on aggregate annual production at 113,000 kilos a year and might be in the top dozen in terms of retailers once joint ventures and royalty growers are factored into the equation. But what allows OrganiGram to break the mold as a grower is its geographic location, as well as its ability to maximize its cultivation space.
OrganiGram has just a single growing facility in its portfolio, and it's located in Moncton, New Brunswick. Of the major growers (i.e., those with the ability to produce at least 100,000 kilos a year), only one is headquartered in Canada's Atlantic provinces -- and that's OrganiGram. Even though the Atlantic provinces (New Brunswick, Prince Edward Island, Nova Scotia, and Newfoundland and Labrador) are less populated than, say, Quebec, British Columbia, or Ontario, initial surveys in Canada have shown that these Atlantic provinces have the highest percentage of adult users throughout the country. That bodes well for OrganiGram's geographic location, although it should be noted that the company has supply deals with all of Canada's provinces.
There's also OrganiGram's Moncton facility, which is expected to produce the aforementioned 113,000 kilos a year but only needs around 490,000 square feet to do so. This incredible 230-plus-gram-per-square-foot yield is one of the highest in the industry. The secret for OrganiGram is that it's using three tiers of growing levels at its flagship campus, thereby maximizing its cultivation space and significantly boosting yield. Presumably, this should allow the company to deliver some of the best margins among growers.
A third and final marijuana stock that's breaking the mold and redefining what it is to be a grower is Flowr Corp. (FLWPF -1.05%). Unlike CannTrust and OrganiGram, Flowr isn't expected to be a major grower. In fact, production estimates at its flagship Kelowna campus in British Columbia may only come in around 50,000 kilos, not including additional plans for outdoor cultivation. What makes Flowr so special is its product and growing efficiency.
Whereas pretty much every pot grower appears intent on producing as much as possible, Flowr has chosen quality over quantity. When complete, the company's Kelowna campus will focus on ultra-premium cannabis strains, which should command a superior per-gram price point and face very little competition (thus, no worries of premium cannabis oversupply). In the latest round of earnings reports, Flowr was about the only cannabis stock to see its dried marijuana flower price rise.
It's also worth mentioning that Flowr's target audience is a more affluent consumer. More well-to-do cannabis buyers are less likely to be fazed by economic fluctuations, which should lead to steadier cash flow for the company.
In terms of efficiency, the only marijuana stock producing at a higher rate per square foot than OrganiGram is Flowr at 300 grams per square foot. Flowr's use of genetics and its partnership with Scotts Miracle-Gro subsidiary Hawthorne Gardening may further expand this production to as high as 450 grams per square foot. That makes Flowr something of a Mighty Mouse among cannabis growers.