Year-to-date gains don't tell the full story. Auxly Cannabis Group (CBWTF -2.70%) isn't up as much as The Green Organic Dutchman (TGOD.F 17.72%) so far in 2019. However, Auxly isn't very far off of its high mark this year while The Green Organic Dutchman (TGOD) is down around 50% from its peak in March.
Auxly has more momentum right now than TGOD. But which of these two marijuana stocks is the better pick for investors moving forward? Here's how Auxly and TGOD stack up against each other.
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The case for Auxly Cannabis Group
If I had to choose just one argument for buying Auxly Cannabis Group, it would be the company's diversification. Auxly is more than just a cannabis grower. The company has investments, partnerships, streaming deals, and joint ventures that put it front and center in nearly every aspect of the cannabis supply chain.
Auxly's investments are beginning to show some fruit. The company reported nearly 2.8 million in Canadian dollars of revenue in the second quarter. That's not super impressive, but it's a big step forward from no revenue at all in the prior-year period.
Granted, Auxly isn't anywhere close to being profitable at this point. However, it's still in expansion mode, building up its staff and funding investments in what amounts to a land grab across the cannabis industry.
The company isn't focusing only on the Canadian opportunity, although it's a major part of Auxly's growth strategy. Auxly owns 80% of Uruguay-based hemp grower Inverell, which gives it a solid launching pad for the Latin American cannabidiol (CBD) market.
The potential for Auxly's diversified approach recently caught the eye of a big company outside the cannabis industry. In July, Auxly announced that big tobacco maker Imperial Brands was investing CA$123 million for a 19.9% stake in Auxly.
In addition to getting a nice influx of cash, Auxly also will use Imperial Brands' vaping technology and have access to its vapor-innovation business Nerudia. This could prove to be important for Auxly's success in Canada's "Cannabis 2.0" market for cannabis derivative products including beverages, edibles, and vapes.
The case for The Green Organic Dutchman
The Green Organic Dutchman wasn't one of the early arrivals to the cannabis industry. However, the company has moved quickly to make up the gap between it and other Canadian producers. TGOD is on track to become the fifth-biggest cannabis producer based on production capacity.
The company reported CA$2.9 million in revenue for its second quarter, up 20% from the previous quarter. Most of these sales were generated from TGOD's European operations. Analysts project that TGOD will increase its sales by more than 580% in 2020 as it ramps up production in Canada.
Like Auxly, TGOD isn't profitable yet. It lost CA$16.6 million in the second quarter. But also like Auxly, TGOD is still in its early stages. As the company fully launches its products in the Canadian adult-use recreational market, its bottom line could and should improve significantly.
TGOD hopes to achieve success in the Cannabis 2.0 market opening soon. The company signed a major deal with Neptune Wellness Solutions for extraction, formulation, and packaging services in preparation for the expanded adult-use market. This deal also gave TGOD exclusivity with Neptune on extraction, formulation, and packaging of certified organic products in the Canadian market.
The company is set to join several of its peers in listing shares on a major U.S. stock exchange. TGOD announced in August that it had applied to list its stock on the Nasdaq stock exchange. This move should increase TGOD's visibility with U.S. investors.
Better marijuana stock
I agree with analysts that TGOD's sales should soar next year. But I also agree with Wall Street that Auxly's sales should skyrocket even higher than TGOD's. In my view, Auxly's vertical integration across the cannabis supply chain gives it another advantage over TGOD.
Investing in marijuana stocks is full of risks. As relatively new-to-the-party companies, Auxly and TGOD come with higher levels of risk than several of their peers. However, I think that Auxly's diversification makes its risk level at least somewhat lower than TGOD's.
My take is that Auxly deserves the nod as the better marijuana stock. But I wouldn't go so far as to call Auxly a definite stock to buy. There are other alternatives for investing in the cannabis industry that I think provide even better risk-reward profiles.
