The Motley Fool

2 Small-Cap Cannabis Stocks That Have Gained Up to 750% in the Last 5 Years

The COVID-19 pandemic has decimated stocks across sectors. The broader indexes have lost momentum and are trading significantly below record highs. Despite a market recovery since the end of March, there’s a great deal of volatility impacting TSX stocks.

However, some small-cap pot companies have managed to crush market returns in the last five years despite a massive correction in stock price this year. Let’s see if they remain a solid bet for the upcoming decade.

VFF Chart

VFF data by YCharts

Village Farms International

Shares of Canada-based cannabis companies Village Farms International (TSX:VFF)(NASDAQ:VFF) are trading at $7.9. The stock touched a record high of $22 last year and has since lost 60% in market value. Despite the recent pullback, shares have gained a staggering 750% in the last five years.

Village Farms International has a market cap of $443 million and part of the high growth marijuana market. But the pot industry is still at a nascent stage and is also grappling with structural issues.

Village Farms stock has recently gained momentum on the back strong cannabis data. According to Statistics Canada, the sale of pot products sky-rocketed in March. At a time when most companies are struggling to grow sales, robust marijuana figures bode well for Village Farms and peers.

Village Farms’ joint venture with Emerald Health Therapeutics which is Pure Sunfarms received a sales license for a greenhouse facility in British Columbia. Pure Sunfarms is likely to start production of Cannabis 2.0 products in the third quarter of 2020.

Village Farms’ expertise in cultivating traditional products will help it gain traction in the cannabis space. It has been operating greenhouses for several years, bringing down the cost of production and increasing profit margins over the years.

Another cannabis stock on the TSX

Shares of Canada-based cannabinoid extraction company Neptune Wellness (TSX:NEPT)(NASDAQ:NEPT) are trading at $4.06. The stock lost 53% in market value since peaking in August 2019. However, it still returned 155% in the last five years. Neptune Wellness has a market cap of $385.5 million.

Similar to its marijuana peers, Neptune Wellness has also gained momentum in recent times. Earlier this month, it announced a six-month hemp extraction partnership. According to this agreement, Neptune will process approximately 44,000 kilograms of crude and concentrate extracts from hemp. These extracts will be used in the processing and production of high-margin derivative products.

The agreement might result in revenue of US$16.5 million. To put this figure into perspective, Neptune reported sales of US$6.5 million in its most recent quarter. Neptune expects fiscal 2021 sales to rise between 300% and 400% to between US$18 million and US$21 million.

The Foolish takeaway

Cannabis companies will remain attractive for growth investors given their expanding addressable market. As more states south of the border legalize marijuana, the demand for pot products will rise at a fast pace. The high-growth medical marijuana market in Europe is also a key revenue driver for several stocks.

Further, Cannabis 2.0 products and the rollout of retail stores in major Canadian provinces will help boost top-line for licensed pot producers, making these stocks a winning bet for long-term investors.

Cannabis stocks are on an upward trajectory. Here's a discounted report that outlines 10 other Canadian stocks to buy right now.

The 10 Best Stocks to Buy This Month

Renowned Canadian investor Iain Butler just named 10 stocks for Canadians to buy TODAY. So if you’re tired of reading about other people getting rich in the stock market, this might be a good day for you.
Because Motley Fool Canada is offering a full 65% off the list price of their top stock-picking service, plus a complete membership fee back guarantee on what you pay for the service. Simply click here to discover how you can take advantage of this.

Click Here to Learn More Today!

The Motley Fool owns shares of Village Farms International, Inc. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.