Buy Alert: This Cannabis Stock Is Up 90% in November
When stock prices spike, it makes you wonder whether it is a knee-jerk reaction to a market movement or announcement or some major news that you may have missed. November has been a particularly good month for cannabis stocks like Village Farms International (TSX:VFF) as it’s up nearly 90% this month alone. But does this indicate a strong buy? The stock has soared on the back of major announcements and external factors that have boosted its price from $6.68 on November 3, to nearly $11 at the time of the report.
Village Farms International, Inc. (VFF) is a greenhouse grower in North America that has been around since 1989. It is now exploring opportunities in high-value, high-growth plant-based consumer packaged goods in cannabis and CBD in North America and select markets internationally. The cannabis company acquired 100% of Pure Sunfarms from JV partner Emerald Health Therapeutics on November 2. Village Farms and Emerald started out as 50-50 partners in the venture before Village Farms brought that up to 58.7% earlier this year.
VFF Strong Q3 Results
The company reported its results for the third quarter of 2020 and beat estimates quite handsomely. Pure Sunfarms clocked revenues of $22.6 million, up 75% from the corresponding period in 2019, and adjusted EBITDA for the same period came in at $5.6 million and net income was $3.2 million.
It’s worth noting that the numbers for Q3 haven’t accounted for 100% acquisition for Pure Sunfarms since Village Farms didn’t own the whole subsidiary at the end of the third quarter.
“Pure Sunfarms’ third quarter results are yet further evidence of its earnings power, based on our unique approach to the cannabis industry, with net income nearly tripling from the second quarter of this year, marking Pure Sunfarms’ seventh consecutive quarter of profitability,” said Village Farms CEO Michael DeGiglio in the third quarter 2020 press release.
Analysts had accounted for between $15 million to $16 million in revenue and $1.9 million in adjusted EBITDA but Pure Sunfarms was well ahead of the estimates. Its EPS of $0.01 beat estimates of -$0.01. The EBITDA margin of over 30% shows that Village Farms is well on its way to solidifying its position as a low-cost leader in North American, and particularly the Canadian cannabis market.
The company believes that it can supply “as much as 30% to 35% of the total Canadian cannabis flower market, in addition to being a leading brand in excess of 20% of the retail channel.”
A major factor in these numbers is the fact that these revenues were achieved with only a small contribution from Pure Sunfarms’ Cannabis 2.0 and bottled oil products, which were launched late in the quarter. But does this mean that VFF cannabis stock is a strong buy?
Why is This Cannabis Stock a Strong Buy?
Pure Sunfarms received a license from Health Canada to conduct human administration trials for sensory evaluation of cannabis, enabling it to engage in on-site assessments of the taste, sight, smell, or touch of its products. The company also said that it is launching CBD products in Hong Kong for the holiday season. This is in line with the steady growth path that Village Farms has charted out for itself thus far.
Cannabis investors should remember that Village Farms wasn’t always a cannabis cultivator. Many of its revenues still comes from agri-produce that include tomatoes, cucumbers, and bell peppers. But it jumped at the opportunity when it arose, setting up Pure Sunfarms’ partnership with Emerald in 2017 for growing wholesale cannabis. Acquiring the whole subsidiary now gives it access to Pure Sunfarms’ greenhouse that produces dried flower, cannabis seeds, prerolls, vape cartridges, and hemp-derived CBD oil.
It is the largest seller of dried cannabis flower products in Ontario (sales were up 15% this quarter alone) and it is now expanding to other Canadian provinces too. It has lined up its Cannabis 2.0 products and it launched them at the fag-end of the third quarter. As these products are poised to take off in North America, Village Farms is in a key position to benefit from this phenomenon.
Yes, this cannabis stock is up nearly 90% in November but we believe VFF will continue to add value for shareholders and believe this is one of the best cannabis stocks to buy for 2021.
Buy Alert: This Cannabis Stock Is Up 90% in November
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