Investors looking to profit from the marijuana "green rush" have plenty of stocks to consider that don't have multibillion-dollar market caps. Two marijuana stocks with market caps well under the $1 billion mark are CannTrust Holdings (NYSE: CTST) and Auxly Cannabis Group (NASDAQOTH: CBWTF).
Both stocks performed dismally in 2018. However, CannTrust's shares have soared so far this year while Auxly stock is up by a tiny amount. Which of these two marijuana stocks is the better pick now? Here's how CannTrust and Auxly stack up against each other.
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The case for CannTrust
CannTrust could be on its way to claiming one of the largest annual production capacities in the entire cannabis industry. The company now can produce around 50,000 kilograms of cannabis on an annualized basis with the completion of the phase 2 expansion of its Niagara Perpetual Harvest Facility. But CannTrust should soon boost that capacity significantly.
The company has another round of expansion at the Niagara facility on tap. This next expansion is slated to be completed by late next year and should increase CannTrust's annual production capacity to more than 100,000 kilograms. CannTrust is also quickly moving in another direction.
CEO Peter Aceto stated in the company's fourth-quarter conference call that CannTrust plans to "lead the market in growing cannabis outdoors." The company recently closed on its purchase of 81 acres in British Columbia and expects to lease more land. Aceto said that CannTrust expects to add another 100,000 to 200,000 kilograms per year to its production capacity as a result of its outdoor growing efforts.
While capacity is important, it's not the only thing that CannTrust has going for it. The company secured agreements in nine of the 10 Canadian provinces for supplying cannabis for the adult-use recreational market. CannTrust has two key partnerships to distribute its adult-use products, one with leading alcoholic beverage distributor Breakthru Beverage Group and another with cannabis retailer National Access Cannabis.
International medical cannabis markets are expected to be even larger than the entire Canadian marijuana market, including medical and adult-use recreational products. CannTrust is currently active on two international fronts. The company invested in Cannatrek and is partnering with the company to distribute medical cannabis products in Australia. CannTrust also formed a joint venture with Stenocare to target Denmark's medical cannabis market.
The case for Auxly Cannabis
Auxly Cannabis could be viewed as a car revving its engine before taking off. The company didn't have any revenue in 2017 and posted a measly 747,000 Canadian dollars (around $537,000) in all of 2018. But much higher revenue shouldn't be too far off.
Auxly is a vertically integrated cannabis company. It has been busy making deals, including equity investments and royalty streaming arrangements, with businesses spanning the cannabis supply chain.
One nice benefit of Auxly's business model is that it provides a lot more diversification than most marijuana stocks do. Auxly is involved in upstream cannabis production, midstream extraction and processing, and downstream distribution and sales.
Auxly is also on track to have a sizable production capacity thanks to its business partners and subsidiaries. The most significant contributor to its capacity will be the company's joint venture with Sunens. This joint venture is building a 1.4 million square foot greenhouse facility in Ontario that should produce around 155,000 kilograms of cannabis per year by 2021. The first harvest from the facility is expected in the first quarter of 2020.
Another important thing to note about Auxly is its 80% stake in Inverell. The Uruguay-based company operates a large-scale outdoor hemp farm. Inverell will begin producing hemp-derived cannabidiol (CBD) by the end of this year and should be operating at peak production by 2021.
Better marijuana stock
Despite the potential for better days ahead for Auxly Cannabis, I think that the clear winner between these two stocks is CannTrust. Although CannTrust reported disappointing fourth-quarter results in late March, its future looks pretty good.
However, both of these marijuana stocks remain risky. CannTrust and Auxly could issue more shares to raise additional capital, which would dilute the value of existing shares. CannTrust could be a winner over the next few years as the marijuana markets in Canada and other countries grow, but this stock is suited only for aggressive investors.
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