MedReleaf Corp. (TSX:LEAF) is the latest cannabis stock to hit the TSX. The stock initially got an unpleasant smack in the face since the IPO happened last Wednesday in the midst of a nasty industry-wide sell-off. At the time of writing, the stock rallied back to around its IPO share price of $9.50.
Could MedReleaf be the spark to reignite the second wave of the green rush? Or will it become a victim of a sell-off ,which appears to still have a lot of negative momentum?
Cannabis stocks are still incredibly risky and volatile, but I like them better now than when they were soaring to wicked new highs. The entire industry was in a bubble, and it inevitably popped. But now that cannabis stocks are back down to more reasonable levels, investors should still be cautious, as volatility and headline risk are still present.
MedReleaf is Canada’s second-largest cannabis stock by market cap after Canopy Growth Corp. (TSX:WEED). The company reported $30 million of revenue and $12.2 million in adjusted EBITDA for the nine months ending on December 31, 2016. The company claims that it stands out from its peers in that it has top-notch quality-assurance practices and that it produces premium cannabis.
Is “premium quality” cannabis really a durable competitive advantage?
I believe “premium” is a subjective term, and many other Canadian cannabis companies may claim to have the highest-quality product over peers. We’re too early in the game to tell which cannabis company will produce the highest-quality weed over the long term.
Aurora Cannabis Inc. (TSXV:ACB) and its gigantic Aurora Sky Project will be an 800,000-square-foot facility with innovative technologies that will allow for the mass production of very high-quality cannabis. The project is being rolled out in phases, but when everything is in order, there’s a good chance that the company will have some of the highest-quality plants in the market.
Many other cannabis companies claim to be able to produce high-quality cannabis as well. No other company would claim to produce sub-par weed, so we’ll just have to wait and see which company really will have the highest-quality weed. I believe all companies have the potential to produce high-quality weed. The real question is, who will be able to produce the most weed with the lowest costs?
MedReleaf has over 15,000 seeds from around the globe and claims that it will be able to breed new strains to treat specific types of ailments in patients. I think cannabis is a commodity, but I also think patented strains could play a major part in which company will be a dominant force as the cannabis industry matures.
The company is definitely an intriguing new option for cannabis investors who want a play on new strain discovery and potential future patents. Cannabis is a medicine, after all, and if one particular strain can treat an ailment better than another, this strain may be akin to a top-selling drug in the pharmaceutical industry.
Stay smart. Stay hungry. Stay Foolish.
