This past year hasn't been a pretty one for cannabis stocks, and the Horizons Marijuana Life Sciences ETF was down more than 40% in 2019. However, not all pot stocks have been struggling, especially late in the year. From Oct. 1 to Dec. 31, shares of both Green Thumb Industries (GTII -3.41%) and MediPharm Labs (MEDIF -0.83%) soared 17% and 15%, respectively. The Marijuana Life Sciences ETF, meanwhile, continued to decline, losing about quarter of its value over the same period.
It's an encouraging sign for these two pot stocks and suggests there may be some bright spots in the industry. Let's take a look to see what drove those rallies and whether the stocks are likely to continue to do well in 2020.
Green Thumb excitement surrounding new stores launching in Illinois
The Illinois recreational pot market opened for business on Jan. 1, and one of the reasons investors were excited about Green Thumb late in the year was that the company announced in late December that it would have five stores ready to go and selling recreational pot in Illinois on day one. It's a tremendous opportunity for Green Thumb, as Illinois is the second-largest state, trailing only California, where pot is now legal for recreational use. Unsurprisingly, the stock would take off in the days following the announcement to end the year on a high note.
Image source: Getty Images.
Green Thumb was also doing reasonably well and not suffering significant losses in 2019 because it's been generating strong sales growth. In its third-quarter results released in November, Green Thumb's sales of $68 million were about quadruple the $17 million that it reported in the prior-year quarter. Over the trailing nine months, its top line was more than $140 million. And although it incurred losses in Q3, its $17 million net loss paled in comparison to some of the other, more substantial losses that cannabis investors have seen this past year.
GMP certification opens up opportunities for MediPharm
MediPharm also had some good news to announce late in the year. In December, the Australian Goods Administration certified that the company's manufacturing facility in Canada met the requirements of the Good Manufacturing Practice for Medicinal Products (GMP). Obtaining the stamp of approval is critical and will help the company grow abroad.
CEO Pat McCutcheon didn't hold back excitement, stating that, "GMP certification is the ticket to gaining access to the rapidly growing global medical cannabis market. And it is the recognized standard by which pharmaceutical manufacturers and consumer packaged goods companies worldwide judge their supply partners."
Currently, the company sells products in Canada and Australia, but obtaining the GMP certification will allow MediPharm to sell finished products in the European Union as well.
Not only are there growth opportunities ahead for MediPharm; the company is already producing strong results today, with sales over the past nine months totaling 97 million Canadian dollars. During that time, the company has also generated a profit of CA$5 million. Staying out of the red is a rarity in the industry and a key reason why MediPharm's stock has outperformed its peers of late.
Are the stocks still good buys today?
There's a lot of optimism for both MediPharm and Green Thumb Industries. Both companies will have the potential to tap into new markets and to achieve even more sales growth in the years to come, but investors should consider valuations as well.
Currently, MediPharm trades at a relatively modest 4.5 times its sales, while Green Thumb is a bit pricier, trading at a price-to-sales multiple of around 15.7. While both marijuana stocks could be good buys in 2020, MediPharm may be the safer option due to its strong financials and cheaper price tag, which may minimize the risk of a correction should the industry continue to struggle this year.
