When a company's revenue is growing rapidly, everything else tends to fall into place. Solid revenue growth usually means that earnings growth and a rising stock price aren't too far behind.
Three marijuana stocks claim the fastest revenue growth of any publicly traded companies operating in the marijuana industry with market caps of at least $200 million. Sales are growing briskly for Aurora Cannabis (NASDAQOTH: ACBFF), Canopy Growth Corporation (NASDAQOTH: TWMJF), and MedReleaf (NASDAQOTH: MEDFF). But are these good stocks to buy right now?
Continue Reading Below
Canadian medical-marijuana provider Aurora Cannabis saw revenue soar from $219,230 in the three months ending March 31, 2016, to nearly $5.2 million in the same period of 2017. And that amount of revenue reflected a 33% increase over the prior sequential quarter.
Although Aurora Cannabis hasn't provided full financial results for subsequent quarters, the company has given a couple of encouraging operational updates. In May, Aurora reported gross revenue of more than $2.4 million. The company announced that August revenue topped $3 million.
There are two good reasons for Aurora's impressive sales growth. First, the number of medical-marijuana patients the company is serving in Canada continues to increase each month. Second, Aurora's German subsidiary has a significant order backlog.
This revenue growth has helped make Aurora Cannabis one of the hottest marijuana stocks of the summer. If Canada opens up access to recreational use of marijuana next year, Aurora should soar even more. Investors should keep in mind, though, that Aurora's market cap of around $720 million has already priced in significant growth. Any roadblocks could cause the stock to plummet.
Canopy Growth is another hot marijuana stock for the summer of 2017. Like Aurora, Canopy Growth is a major supplier of medical marijuana in Canada. And also like Aurora, the company's revenue has been growing by leaps and bounds.
In the quarter ended June 30, Canopy Growth reported revenue of $15.9 million. That figure reflected a 127% jump over the prior-year period and an 8% increase over the previous sequential quarter. Canopy's sales probably would have been even higher during the quarter, but the company's launch of its Tweed Main Street online store required moving several of its individual e-commerce sites offline and migrating customers to a single database and new e-commerce platform. These efforts reduced sales activity for around 10 days in April.
That short-term pain could lead to long-term gain for Canopy Growth, though. Bruce Linton, Canopy Growth's chairman and CEO, thinks that "business-to-consumer e-commerce sales will form the backbone of the Canadian cannabis market in 2018 and beyond." If Canada moves forward as expected with legalization of recreational marijuana in 2018, the company's e-commerce platform changes could help it better serve what should be a huge market.
The pros and cons for Aurora Cannabis largely apply to Canopy Growth also. While Canopy is enjoying strong growth, the stock is priced to perfection with a $1.2 billion market cap. Investors are banking on having the recreational market in Canada open up on schedule. Any delays or problems would probably take a major toll on Canopy Growth stock.
It's probably no surprise that yet another Canadian medical-marijuana provider claims a spot among the marijuana stocks with the fastest-growing revenue. MedReleaf is the newest of the group to trade its shares on a public exchange. In part because of the timing of its initial public offering, MedReleaf stock hasn't enjoyed the huge surge over the past 12 months that Aurora Cannabis and Canopy Growth have. However, MedReleaf's revenue growth has been solid.
In the quarter ended June 30, MedReleaf posted total revenue of $10.5 million. That represented a nice 18.8% increase over the prior-year period. However, the figure was less than 1% higher than the revenue reported in the previous sequential quarter. One key reason was a 36% reduction in the average selling price of dried cannabis because of a change in the Veterans Affairs Canada reimbursement policy.
MedReleaf's opportunities for revenue growth are similar to those of Aurora and Canopy. The company should benefit from expansion in the Canadian and German medical-marijuana markets. MedReleaf first launched its cannabis-based extract products, including both cannabis oil and cannabis oil capsules, in November 2016, which should give it more room to grow in that market than its rivals have. The potential in the Canadian recreational market is also tremendous. MedReleaf's relatively low cost structure could even give it a competitive advantage.
Of course, MedReleaf faces the same risks that the others do as well. Fast-growing revenue is great, but the lofty stock price is based on expectations of much faster growth in the future. Any hiccups could make investors quickly forget about the revenue growth and focus more on the steep valuation of the stock.
10 stocks we like better than Aurora Cannabis Inc.When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Aurora Cannabis Inc. wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of September 5, 2017