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Why MedReleaf Corp. Is Rallying Over 2%

MedReleaf Corp. (TSX:LEAF), North America’s first and only ICH-GMP and ISO 9001 certified cannabis producer, released its fiscal 2018 third-quarter earnings results this morning, and its stock has responded by rising over 2% in early trading. Let’s break down the quarterly results to determine if we should be long-term buyers today.

Extract growth leads to record sales and volume

Here’s a quick breakdown of 12 of the most notable statistics from MedReleaf’s three-month period ended December 31, 2017, compared with the same period in 2016:

Metric Q3 2018 Q3 2017 Change
Dried cannabis sales $8.57 million $9.83 million (12.8%)
Extracts sales $2.35 million $296,000 693.6%
Other sales $428,000 $299,000 43.1%
Total sales $11.35 million $10.43 million 8.9%
Gross profit $9.99 million $9.71 million 2.8%
Adjusted product contribution margin $7.33 million $8.59 million (14.7%)
Adjusted EBITDA (loss) ($233,000) $4.09 million (>100%)
Net income (loss) ($5.00 million) $1.74 million (>100%)
Net income (loss) per diluted share ($0.05) $0.02 (>100%)
Total grams sold 1,263,490 993,259 27.2%
Total average selling price per gram $8.98 $10.50 (14.5%)
Cash cost per gram produced $1.83 $1.55 18.1%

Notable commentary

In the press release, Neil Closner, the CEO of MedReleaf, summed up the quarter when he made the following statement:

“In the third quarter, we set new records for total sales and grams sold demonstrating the strength of our underlying business while we continue to make investments in preparation for the recreational market and for international expansion … We also launched our first adult recreational-use brand, San Rafael ’71, which is getting good reception from the various provincial purchase authorities. With a strong balance sheet bolstered by $192.5 million in equity capital raised since last December, we have a clear opportunity to establish MedReleaf as a global leader in the cannabis industry.”

What should you do now?

I think it was a solid quarter overall for MedReleaf, despite the negative earnings, highlighted by record sales and volume as a result of triple-digit sales growth of extract-based products. I also think its CEO is absolutely right when he said that the company has the opportunity to establish itself as “a global leader in the cannabis industry,” especially after the recent launch of its San Rafael ’71 brand, because it now has the potential to benefit from the explosive growth of both medical and recreational cannabis in the years ahead, as long as it executes its strategy.

With all of the information provided above in mind, I think investors seeking exposure to the cannabis industry should consider MedReleaf to be one of the best long-term investment options in the market today, but I must add that I prefer Canopy Growth Corp. (TSX:WEED) at current levels.

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Fool contributor Joseph Solitro has no position in any stocks mentioned.

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