Marijuana stocks have seen better days than those of the past two weeks. While much of this can be attributed to spikes in volatility from coronavirus related issues, we can’t blame it all on recent news events. Pot stocks are notoriously volatile. This is something that all investors in the industry know and know well. But, with spikes and drops in pricing happening on a regular basis, are there any areas of the industry that may be more resilient to market fluctuations? The short answer is yes. There are some sub-sectors within the cannabis market that offer investors a relatively safer option when investing in pot stocks.
One in specific is known as the extraction-based marijuana stocks. These companies produce extractions from the cannabis plant other for wholesale, retail or for contracted purposes. Because of this, oftentimes they have less exposure to the industry at large. In addition, extractions are a much higher margin product than raw cannabis is. This means that profitability can at times be more possible with the extraction business model. So with many large markets around the world coping with the news of coronavirus, can these two pot stocks prove the bears wrong?
Marijuana Stock To Watch: A Leading Canadian Extractor
MediPharm Labs (MEDIF Stock Report) (LABS) is an extraction service cannabis company based out of Canada. Given its contracts and current production, the company should be able to ride out the most recent storm of volatility. MediPharm, has stated that it is working to push out around 500,000 kilograms of processing capacity per year when operating at 100%. The company has been working to increase this amount as other competitors are pushing closer to the 7 figure range. But, what makes MediPharm so interesting is that it has been profitable for almost a year at this point. Most major pot stocks have struggled to post profits as the industry has not been too kind during the last six months.
One of the reasons that it has been profitable comes from the contracts it has. As an extraction service provider, the company produces extracts based on contracts. These contracts ranged from 1-2 years at max. In addition, it has no issue with any extra production as it is only producing the amount that is demanded by its customers. So with some stability for the next year or two, MediPharm looks like one of the leading profitable pot stocks moving forward.
Marijuana Stock To Watch #2 Another Canadian Extraction Company
Valens (VLNCF Stock Report) (VLNS) is another extraction services provider based out of Canada. Again, the company has maintained a high level of profitability while others have not. In addition to producing extracts, the company has a large hand in the derivatives market. This means that it has exposure to one of the fastest-growing areas of the Canadian cannabis market. Derivatives include everything from edibles to beverages and more.
In Canada, these products only became legal recently which means that investors expect a lot of growth to come in the next few months. Currently, Valens posted revenue growth of around 90% from its third-quarter results. This equals around $30 million in revenue with an EBITDA just north of $17 million. If we look at the operating numbers, thee company pulled in around $8.3 million in earnings. But as mentioned before, the next few months to a year remake extremely crucial to the companies long term success.