Marijuana should be one of the fastest-growing industries on the planet over the next decade, but it's an industry that still has quite a bit of maturing to do. In the early stages of legalization in Canada, and at the state level in the U.S., we've witnessed numerous instances of supply shortages or tax issues wreaking havoc on the legal cannabis market.
However, one area where pot stocks have been demonstrating signs of maturity is on the uplisting front.
Uplisting to the Nasdaq or NYSE can be big for pot stocks
Over the past two years and change, more than a dozen cannabis stocks have either had an initial public offering on the Nasdaq or New York Stocks Exchange (NYSE), or uplisted from the over-the-counter (OTC) exchange to the Nasdaq or NYSE.
Making the move to either of the United States' more reputable exchanges provides a number of advantages, especially for pot stocks that had been trading on the OTC exchange. It means higher average daily trading volume, improved investor visibility, and the ability to be listed side by side with some of the U.S.'s most time-tested companies. Perhaps most important, listing on the Nasdaq or NYSE allows for greater coverage and/or investment from Wall Street firms that might otherwise avoid, or be barred from purchasing, OTC-listed stocks.
The thing about uplisting to the NYSE or Nasdaq is that it's not for every company. First off, companies that are uplisting have to meet a laundry list of requirements to be eligible to make the move. These requirements typically involve average daily trading volume, minimum annual sales, and a number of other financial measurements.
Furthermore, since cannabis is an illicit substance at the federal level in the United States, any company that directly touches the plant in the U.S. is barred from listing its stock on either major exchange. This is why Canopy Growth, which is listed on the NYSE, hasn't entered the U.S. cannabis market. By doing so before it's federally legal, it would jeopardize its listing on the best-known exchange in the world.
Combined, these factors suggest that only a small number of marijuana stocks are truly qualified to uplist their shares from the OTC exchange to either the NYSE or Nasdaq.
Are these cannabis stocks next to uplist?
With just over a dozen pot stocks having already made the move, look for these three marijuana stocks to potentially uplist next.
If there were such a thing as a no-brainer to uplist to a major exchange like the Nasdaq, it's cannabidiol (CBD) products market share leader Charlotte's Web (CWBHF 10.64%). Again, keeping in mind that there are a lot of metrics to examine, Charlotte's Web appears to have all pertinent boxes checked. It trades close to 650,000 shares on a daily basis, is already profitable, and sports a hearty market cap and share price of $691 million and $14.10, respectively, as of this past weekend.
The beauty of Charlotte's Web's business model is the growth potential behind CBD -- the cannabinoid best known for its perceived medical benefits that doesn't get users high. The Brightfield Group has forecast a compound annual growth rate of more than 100% through 2023 for CBD, which is meaningful given Charlotte's Web's leading market share in a highly diversified marketplace. And, don't forget that President Trump signed the farm bill into law in December, fully legalizing the industrial production of hemp and hemp-derived CBD.
When the year began, Charlotte's Web had a presence with its topical products in 3,680 retail doors. But following a somewhat recent deal with national grocer Kroger that spans 1,350 stores in 22 states, Charlotte's Web's reach now extends beyond 8,000 stores. This is really just the tip of the iceberg, as evidenced by the company boosting its hemp planting by 187% in 2019 to 862 acres from 300 acres last year.
Again, with the company already profitable and having hinted about a possible uplisting to a major U.S. exchange, it looks like a shoo-in to make the move.
Perhaps the next-likeliest marijuana stock to uplist to a major U.S. exchange is Charlotte's Web's most visible rival, CV Sciences (CVSI -4.19%). Though it's considerably smaller than its rival, with a market cap near $200 million and a share price in the $2's, CV Sciences has average trading volume of more than 800,000, will be in business for its 10th year in 2020, and has generated a handful of profitable quarters on an adjusted basis.
A recent look at CV Sciences' most recent quarterly report, and some of its latest deals, suggests it has the pedigree to uplist. The company has generated 14 consecutive quarters of sequential revenue growth, and it's planning to boost its cultivation capacity to over 500 acres.
Like Charlotte's Web, CV Sciences has done well in terms of landing national retailers as distribution points. It, too, nabbed a 1,350-store deal with Kroger in 22 states, and announced just this past week that its flagship PlusCBD Oil line will be carried by 150 Harris Teeter locations in a number of states in the Southeastern and Atlantic region of the United States. Since the year began, CV Sciences' retail door count has more than doubled, to over 5,400 locations.
Perhaps the one knock against CV Sciences, at this point, is going to be its pedestrian share price. Nonetheless, a letter to shareholders in mid-August from CEO Joseph Dowling notes that the company has hired special legal counsel to assist with a potential uplisting to the Nasdaq. It's no apparent shoo-in like Charlotte's Web, but the company does check a lot of boxes.
Last, but certainly not least, extraction-services provider MediPharm Labs (MEDIF -3.94%) could be an under-the-radar candidate for an eventual uplisting to a major U.S. exchange. MediPharm ended the previous week with a market cap of $333 million, a share price of about $3, and average daily volume of 269,000. And yes, like Charlotte's Web and CV Sciences, it was able to generate a profit in its most recent quarter.
Extraction services is an especially exciting industry throughout North America. In the U.S., extraction-service providers are processing hemp for its CBD content. Meanwhile, in Canada, processors are taking cannabis and/or hemp biomass and extracting resins, distillates, concentrates, or targeted cannabinoids for their clients. MediPharm processes cannabis and hemp in Canada, but exports outside of its home market (although not to the U.S.). Because it's not processing for U.S. pot companies, its listing on the NYSE or Nasdaq wouldn't be jeopardized.
As noted, this is also a company that surprised Wall Street with a profit during its latest quarter. This wasn't a one-time-benefit-laden profit, either. We're talking about revenue outpacing expenses. In other words, a true operating profit.
The one knock against MediPharm Labs is that the company only began operations in November. Though it was founded four years ago, its lack of being a time-tested business could potentially delay any possibility of uplisting. But aside from this point, it looks to have the remaining pertinent boxes checked.