Better Marijuana Stock: MedReleaf vs. Emerald Health

If you're looking for the marijuana stocks with the best growth opportunities, face north. Canada is the home for quite a few of the hottest marijuana stocks on the market, and many of them could get even hotter.

Two such stocks that were definitely on fire in 2017 were MedReleaf (NASDAQOTH: MEDFF) and Emerald Health Therapeutics (NASDAQOTH: EMHTF). Although 2018 hasn't been great so far for either of these Canadian marijuana stocks, there are significant opportunities ahead. But which of these is the better stock? Here's how MedReleaf and Emerald Health compare.

The case for MedReleaf

MedReleaf stock jumped 148% in 2017 -- and it wasn't even available for trading until June. It had the largest North American marijuana initial public offering (IPO) in history to that point. So far this year, however, MedReleaf's share price is down a little.

One reason why the stock has been sluggish in 2018 is the minor delay in the effort to legalize recreational marijuana in Canada. The original goal was for legalization to take effect in July 2018, but the time frame has slipped until late August or early September.

Even with the delay, the recreational marijuana market presents a significant growth opportunity for MedReleaf. The company has been expanding capacity in anticipation of strong demand, most recently agreeing to purchase 164 acres in Ontario with existing greenhouse space of 1 million square feet. With this addition, MedReleaf will have fully funded annual production capacity of 140,000 kilograms of marijuana.

MedReleaf already has lined up at least one major deal for using that capacity. On Feb. 14, 2018, the company announced an agreement to supply the Quebec market with a minimum of 8,000 kilograms per year of marijuana for the recreational market.

In the meantime, MedReleaf continues to make progress in the medical marijuana market, both in Canada and in other countries. The company reported record-high sales of medical marijuana in its last quarter. MedReleaf has also forged international partnerships to provide medical marijuana in Australia, Brazil, and Germany that could fuel more growth in the future.

MedReleaf also can claim several honors that rivals can't. The company won 10 awards at the 2017 Lift Canadian Cannabis Awards, including Top Licensed Producer as well as first-place prizes for four of its cannabis products.

The case for Emerald Health

Emerald Health ranked as one of the best-performing marijuana stocks of 2017, soaring 367%. Most of the tremendous gain came in the last quarter of the year, with investors especially excited about the potential for mergers and acquisitions in the marijuana industry. Although Emerald Health stock was up more than 75% at one point early in 2018, the marijuana grower's share price is now down a bit year to date.

Like MedReleaf, Emerald Health has been busy beefing up its production capacity in advance of the legalization of recreational marijuana in Canada. The company formed a joint venture with Village Farms (NASDAQOTH: VFFIF) in June 2017. As part of the deal, Village Farms, one of the largest growers of greenhouse tomatoes, bell peppers, and cucumbers in North America, is converting greenhouse space to grow cannabis.

While Emerald Health hasn't expanded to international medical marijuana markets at this point, the company did make an intriguing move earlier this year. In January, Emerald Health and DMG Blockchain Solutions formed a joint venture named CannaChain Technologies. The goal of this joint venture is "to develop a foundational blockchain-based supply chain management system and e-commerce marketplace for the legal cannabis industry."

Blockchain technology is being applied to quite a few promising business applications that have nothing to do with the volatile cryptocurrencies that have stirred controversy in the investment community. Use of blockchain in the retail marijuana market could hold significant potential.

Emerald Health's market cap of under $500 million is only around one-third the size of MedReleaf. As a result, it's possible that the company could find itself on more shortlists of acquisition targets by larger marijuana growers.

Better buy

In my opinion, there's one critical factor to determine which of these marijuana stocks is the better buy. That factor is production capacity. Since MedReleaf claims greater annual production capacity than Emerald Health does, I think it's the better choice.

My rationale stems from two things. First, the Canadian government has projected the size of the country's recreational marijuana market to be between $4.2 billion and $6.2 billion annually. Second, the medical marijuana market in Canada is expected to more than quadruple by 2024 to $1.3 billion. The companies with the most capacity will claim more growth in both of these markets.

MedReleaf currently has around 17% of the medical dried cannabis market in Canada. If it can grab a similar share of the total marijuana market in the country, it's not unrealistic to think it can generate annual sales of more than $1 billion within the next few years. That's not a foregone conclusion, of course, but MedReleaf should have a nice growth runway ahead of it.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.