NewLake Capital Partners (OTC: NLCP), Village Farms International (NASDAQ: VFF) and Hydrofarm Holdings Group (NASDAQ: HYFM) aren’t as well known as many other cannabis companies, but all three small-cap stocks have significant growth potential. You are also less exposed to the whims of marijuana prices or sales.
NewLake is a real estate investment trust that rents grows, processing facilities, and dispensaries to cannabis companies. Village Farms International is one of the largest greenhouse growers in North America and its subsidiary Pure Sunfarms is one of the largest cannabis-related operations in the world. Hydrofarm Holdings sells a range of controlled cultivation products that can be used on many crops, including marijuana.
Image source: Getty Images.
NewLake Capital Partners has a good name
NewLake Capital Partners went public on August 20 and was just beginning over-the-counter trading. The REIT focuses on raising capital through leasebacks for cannabis companies and is following the same successful path taken by Innovative industrial real estate.
Due to federal regulations, cannabis companies are struggling to get bank funding, so NewLake is buying their properties and renting them out on triple net leases that impose expenses like property taxes, insurance, maintenance, and utilities on tenants, and include an annual rent increase based on a clauses Inflation index. The facility unlocks capital for cannabis companies and provides NewLake with a steady stream of income.
The stock traded for about $ 30 on Friday, slightly higher than its IPO price of $ 26 per share. It was only founded two years ago, but the company’s tenants already include such big names as Curaleaf stocks, Cresco Labs, Real cannabis, and Columbia Care. As of June 30, the company had 27 properties that were 100% let.
Since then, the company has shown that it wants to expand. In July, the company invested up to $ 20.5 million to purchase land and build a 130,757 square foot cultivation and processing facility in Phoenix, to be leased from Tempe, Arizona-based cannabis company Mint. This month, the Massachusetts Worchester Business Journal announced that the company had spent $ 8.8 million on four Fitchburg, Massachusetts properties that were jointly owned by medical cannabis company Revolutionary Growers and Anwelt Heritage Condominiums.
Another big plus is that the company is debt free, at least for now; Following the IPO, management says it has more than $ 300 million to invest.
Village Farms International is making great strides
Village Farms International stocks are down just over 4% over the year. If you look at the one-year price-to-sales ratio of 2.36, the stock becomes a bargain. The company just bought Balanced Health Botanicals, a CBD company based in Colorado, for $ 75 million. (CBD, or cannabidiol, is a non-psychoactive ingredient in marijuana.) It’s just the newest move for the greenhouse grower to tie it closer to cannabis. Its subsidiary Pure Sunfarms, which the company says is the top-selling licensed producer of dried cannabis flowers in Ontario, is driving Village Farms’ sales growth.
In the second quarter, the company posted sales of $ 70.37 million, up 47.9% year over year, partly due to Pure Sunfarms’ sales of $ 24.7 million, which compared increased by 136% compared to the previous year. It was the fourth straight quarter that the company had growth in retail branded sales and the eleventh straight quarter of positive results Earnings before interest, taxes, depreciation or EBITDA for Pure Sunfarms.
However, the company’s buying frenzy comes at a cost; it lost $ 4.5 million in the quarter, a sharp increase from a loss of $ 119,000 in the same period in 2020.
An important aspect of Village Farms is its potential in the United States. The company’s subsidiary, Pure Sunfarms, sells its cannabis exclusively in Canada. Village Farms, however, sells CBD products in the United States and is positioning itself to pursue so-called “high-THC cannabis opportunities” (THC or tetrahydrocannabinol, the psychoactive component of marijuana) in the United States as soon as the law allows it is to do this.
Hydrofarm Holdings devours businesses
Hydrofarm Holdings’ stock is down 8% over the year. The company’s connection to cannabis is that its controlled environment equipment is particularly useful for marijuana, but its hydroponic products are used on a wide variety of crops.
Hydrofarm has built its business through mergers and acquisitions, and on its second quarter conference call, management said it intends to continue exploring ways to grow the company through M&A activity. The biggest move in recent times was the purchase of Greenstar Plant Products, a plant nutrient company, for $ 83 million earlier this month. This follows the purchase of three Oregon hydroponics companies under the Aurora Innovation banner and the purchase of nutrient manufacturers Heavy 16, House & Garden and Mad Farmer, all since April. The company plans to open two new distribution centers this quarter; Combined with the above purchases, the distribution center and manufacturing space is expected to grow by 70%.
Hydrofarm had a strong second quarter, posting sales of $ 133.8 million, up 46.7% year over year; Gross profit of 22.1% of net sales compared to 19.6% in the previous year; and net income of $ 2.3 million, compared to $ 1.9 million for the same period in 2020. Including the acquisitions, management expects net sales to increase 45 to 50 percent year over year.
VFF sales data (TTM) from YCharts
Sift through the marijuana leaves to determine the correct supply
All three of these marijuana companies have huge potential, in part because they’re not well known and their stocks haven’t skyrocketed.
While I’m excited about the opportunities for NewLake Capital Partners, the track record is still insufficient to make me preferred over the other two companies.
It’s not an easy choice between the other two as both have seen sales up more than 25% this year. Right now I like Hydrofarm Holdings as it is already profitable and taking bigger strides. That said, Village Farms, with its 9 million square feet of indoor growing space, could definitely become a huge factor in the cannabis and CBD industry, so it’s a great long-term game.
Here is the marijuana stock you’ve been waiting for
A little-known Canadian company has just figured out what some experts believe could be key to capitalizing on the coming marijuana boom.
And make no mistake – it will come.
Cannabis legalization is spreading in North America – 15 states plus Washington, DC have legalized all recreational marijuana in recent years, and full legalization came to Canada in October 2018.
And a Canadian company under the radar is about to explode from this coming marijuana revolution.
Because a groundbreaking deal has just been made between the Ontario government and this powerful company … and you must hear that story today, if you ever thought about investing in pot stocks.
Just click here for the full story now.
Jim Halley owns shares of Innovative Industrial Properties. The Motley Fool owns shares of and recommends Cresco Labs Inc., Innovative Industrial Properties, Trulieve Cannabis Corp., Village Farms International Inc., and Village Farms International, Inc. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.