As a result of the COVID-19 pandemic, marijuana sales are skyrocketing as many people are turning to the product to deal with isolation, anxiety, and depression.
Indeed, new market research compiled by Marijuana Business Factbook estimates medical and recreational cannabis sales are on track to grow by 40% this year over 2019, bringing total annual revenue to $15 billion by the end of 2020.
Furthermore, the U.S. marijuana sector alone is estimated to be worth $37 billion by 2024 as more states join the legalization bandwagon. Hence, it has become vital for investors who buy weed stocks to choose those with solid business performance, as such companies have the most potential for share appreciation. Today, let's take a look at two companies that fit the criteria for July.
A large, profitable pot producer
Among major Canadian pot producers, Aphria (NASDAQ:APHA) currently boasts the highest quarterly net revenue, the highest operating income, and the highest adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). Nine months into its 2020 fiscal year, the company has improved its net income by $35 million Canadian dollars over last year and is no longer burning cash. Indeed, Aphria boasts more than CA$515 million in cash and equivalents on its balance sheet. That's a lot of liquidity for a company with a market cap of just CA$1.5 billion.
The company is definitely in an optimal position. For starters, Aphria harvested and sold more than 14,000 kg worth of cannabis in the third quarter of 2020, double the amount it sold in the second quarter. More critically, CEO Irwin Simon said in an interview with Canada's Financial Post that the company had seen no slowdown in sales or pricing pressure due to COVID-19, and that all of its facilities were fully operational.
It is incredibly reassuring to hear these indications that Aphria's current growth streak will likely continue well into the future. In the past nine months, Aphria's revenue, gross profit, and net income have increased to CA$391 million, CA$145 million, and CA$14.2 million, respectively. During the same period last year, the company only had CA$108 million in revenue, CA$37 million in gross profit, and a net loss of CA$32 million. Hence, I believe Aphria should be a core holding in every cannabis investor's portfolio, especially those with an eye toward value investing.
An industry leader in CBD oils
Currently, Charlotte's Web Holdings (OTC:CWBH.F) is the No. 1 brand in CBD wellness products. The company's hemp oils are sold in over 21,000 retail locations, with 2.34 million pounds produced in 2019 and 862 acres planted.
Although these figures are impressive, Charlotte's Web has fallen on tough times as COVID-19-related lockdown and quarantine measures in the U.S. and Canada have forced the company's retailers to shut down temporarily. In the first quarter of 2020, Charlotte's Web recorded revenue of $21.5 million, representing basically no growth from first-quarter 2019 revenue of $21.7 million.
While no one knows when COVID-19 will subside for good, Charlotte's Web was undoubtedly one of the fastest-growing CBD oil producers before the pandemic struck. Its recent product launches -- including CBD gummies, pharmacological CBD, and CBD pet treats -- have been highly successful, with pet treat revenue up 163% over last year.
Meanwhile, Charlotte's Web's market share has increased to 35%, and the company is still very healthy, with 70% in gross margins and a small net loss. Also, Charlotte's Web has negligible amounts of debt and $53 million in cash.
Overall, I expect the company's growth streak to return as soon as the COVID-19 pandemic is over and retail locations reopen. With a price-to-sales ratio of just 6.5 going forward, investors are essentially getting a great growth stock for value prices.