Until now the cannabis industry and the stocks that have performed the best are the large companies with huge market caps. Investors have focused on these companies since their survival in the growing industry seems to be more likely than some of the smaller companies that are at risk of being crowded out.
Mid-sized companies have gone slightly under the radar, leaving them with reasonable valuations and offering investors a major opportunity if it’s taken soon.
As Canada moves toward the second wave of legalization, these mid-sized companies are poised to break out, especially in the coming months, as a lot of new capacity comes online with construction projects finishing.
Green Organic Dutchman
TGOD is one of the best value plays in the cannabis industry. It has big plans and well-thought-out steps for the next two years to handle the rollout of what it is calling cannabis 2.0.
With the introduction of edibles in the retail market and new capacity coming online for TGOD, 2020 looks to be a big growth year. It expects to have more than 200,000 kg of capacity by 2021.
The company has a very strong research team working on innovative products to differentiate itself and its brands as well as grow its intellectual property. In addition, it has achieved complete organic certification to grow in its incredible state-of-the-art hybrid facilities.
TGOD now has deals with B.C and Alberta and just made its first delivery to Ontario. As more of its capacity comes online, it expects to sign more deals nationwide.
In addition to its domestic operations, it’s also been looking globally for growth opportunities. The company operates in multiple jurisdictions internationally including the U.S, Jamaica, Mexico, Poland, and Denmark.
With a market cap of just over $800 million, it’s easily a $1 billion stock and could be worth a lot more.
Supreme is another growing cannabis producer that operates through its many brands in Canada. At the moment, Supreme has roughly 50,000 kg of capacity and has signed deals with eight provinces.
It has also been diversifying its operations by expanding internationally, similar to many other companies in the sector.
Supreme’s operational strategy has been to focus on growing high-margin, high-quality product. It believes that the domestic recreational market is oversupplied with lower-cost cannabis and users looking for higher-quality cannabis that are willing to pay the price have far fewer choices.
It’s also been positioning itself for the legalization of edibles and extracts by partnering with PAX a leading vaporizer company to make branded oil pods for vaping when the regulations come into play.
With a market cap less than $500 million, Supreme has a ton of value and is one of the best opportunities on the TSX.
Flowr is another well-positioned, mid-sized cannabis producer. It has a diversified mix of assets that include indoor, outdoor, and R&D facilities, both domestically and internationally. Like the other companies, it sees international markets as a huge opportunity for growth.
It acquired Holigen which it believes is highly complementary to its domestic business. Holigen has two Portuguese assets that Flowr is planning on using to get its foot in the door to the European market.
The project is massive and will provide many benefits, it has even been designated as a project of national interest by the Portuguese government.
Flowr is also planning for expansion into Australia as a distribution centre for the Asia pacific markets.
Domestically, its strategy is similar to Supreme, which is to focus on growing high-quality, high-priced cannabis.
At just under $350 million, Flowr currently has the lowest market cap and the most value of all three.
Each of these companies is uniquely positioned to benefit from the growing cannabis industry, both domestically and globally.
The introduction of edibles and extracts to the Canadian recreational market coupled with new capacity coming online and growing demand worldwide means that massive growth in the sector is not far off.
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Fool contributor Daniel Da Costa has no position in any of the stocks mentioned.