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Better Marijuana Stock: MariMed vs. Village Farms

By Keith Speights – Jun 19, 2019 at 8:15AM

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Which stock wins in a matchup between a top U.S. cannabis operator and a fast-growing Canadian cannabis producer?

There has been a big role reversal for MariMed (MRMD -1.07%) and Village Farms International (VFF). In 2018, MariMed ranked as one of the top-performing U.S. marijuana stocks, jumping 371% while Village Farms plunged 47%. So far this year, however, Village Farms is one of the biggest winners, with the stock up more than 270% while MariMed's share price has dropped more than 30%.

Some investors might think that it's about time for the tables to turn once again, with MariMed rebounding and Village Farms giving up some of its big year-to-date gains. Others might feel that the current trends for these two marijuana stocks will continue.

Which of these two stocks is actually the better pick for long-term investors? Here's what you need to know to decide between MariMed and Village Farms.

Marijuana growing in a greenhouse

Image source: Getty Images.

The case for MariMed

Probably the best argument for buying MariMed stock is that the company is growing rapidly, with tremendous opportunities for that growth to accelerate. MariMed reported first-quarter year-over-year revenue growth of 69%. The company's adjusted EBITDA increased by 76% over the prior-year period.

But it's MariMed's opportunities for even more growth that will likely be more intriguing to investors. The company started out offering advisory services to medical cannabis operators. Now, though, MariMed is buying up its clients to become one of the largest multistate cannabis operators in the U.S.

When its transition is completed, MariMed will manage medical cannabis operations in Massachusetts, Illinois, Nevada, and Maryland. MariMed has already received approval from the state of Massachusetts to acquire one of its clients, ARL Healthcare, and awaits state approval in the other three states to complete the transfer of ownership of the clients' businesses that it is buying.

With these transactions likely to finalize over the next few months, MariMed should see its revenue skyrocket. The company also hopes to add fuel to the fire through its entry into the U.S. hemp cannabidiol (CBD) market.

MariMed claims a significant stake in GenCanna Global, one of the largest producers of CBD products in the U.S. that comply with Good Manufacturing Process (GMP) guidelines. The company also established a new subsidiary, aptly named MariMed Hemp, to focus on the U.S. hemp CBD market. 

MariMed CEO Bob Fireman thinks his company is now "a significant early mover in the burgeoning CBD health and wellness market." Cannabis market researcher Brightfield Group predicts that the U.S. hemp CBD market will soar to $22 billion by 2022. While other estimates aren't that optimistic, there is certainly a big opportunity. 

The case for Village Farms

A few years ago, Village Farms focused on growing greenhouse produce such as cucumbers, peppers, and tomatoes. Thanks to its partnership with Emerald Health Therapeutics (EMHT.F 6.39%), however, Village Farms today ranks as an up-and-coming player in the Canadian cannabis market.

In 2017, Village Farms and Emerald formed a joint venture named Pure Sunfarms. Village Farms' contribution to the joint venture was a 1.1 million-square-foot greenhouse in Delta, British Columbia, that could be converted to growing cannabis. That conversion has been completed with the Delta greenhouse now fully operational to produce cannabis.

Pure Sunfarms is set to produce quite a bit of cannabis. Its current facility can grow 75,000 kilograms on an annual basis. Village Farms announced in April that the joint venture planned to double its production capacity by converting another identical greenhouse in Delta to produce cannabis.

With demand exceeding supply in the Canadian adult-use recreational marijuana market, Village Farms and Pure Sunfarms should be able to sell everything they can produce. That's likely to translate to tremendous revenue growth for Village Farms over the next few years.

Village Farms also intends to compete in the U.S. hemp CBD market. CEO Michael DeGiglio stated in the company's Q1 conference call that Village Farms' focus will be on growing, extracting, and producing hemp products for the U.S. retail market. He said the company will start off by selling biomass for extraction but plans to shift into producing its own branded and private-label hemp CBD products next year.

In May, Village Farms announced an expansion of its hemp-growing capabilities. The company entered into an agreement with Arkansas Valley Hemp, LLC to form a joint venture to grow hemp outdoors in Colorado as well as extract CBD from hemp.

Better marijuana stock

Both of these companies are likely to deliver huge revenue growth in the not-too-distant future. But the long-term prospects are what really matter. I think that MariMed could have an advantage over the long run.

My chief concern for Village Farms is that it could be in trouble when supply inevitably catches up with demand in Canada. I agree with HEXO (HEXO -2.04%) (HEXO 2.13%) CEO Sebastien St.-Louis' prediction that there will be a shake-up in the Canadian cannabis industry within the next 24 months that will cause major problems for smaller cannabis producers. Village Farms could be a victim of this shake-up, especially with the company's poor crop yield putting it at a disadvantage compared with more efficient producers. 

I think that MariMed's stake in GenCanna puts the company in a pretty good position to succeed in the U.S. hemp market. I also view MariMed's strategy to buy its clients as a smart move. 

While I like MariMed over Village Farms, I don't think that MariMed is a great stock to buy right now. Even with the year-to-date decline for the stock, MariMed's shares still trade at an astronomical multiple of sales. I'd prefer to see how well the company performs in the hemp CBD market before recommending the stock as a buy.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends HEXO. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Village Farms International, Inc. Stock Quote
Village Farms International, Inc.
VFF
$1.91 (%)
MariMed Inc. Stock Quote
MariMed Inc.
MRMD
$0.43 (-1.07%) $0.00
Emerald Health Therapeutics, Inc. Stock Quote
Emerald Health Therapeutics, Inc.
EMHT.F
$0.03 (6.39%) $0.00
HEXO Stock Quote
HEXO
HEXO
$0.24 (2.13%) $0.01
HEXO Stock Quote
HEXO
HEXO
$0.17 (-2.04%) $0.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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