Our Top 3 Penny Pot Stocks for 2020

The cannabis industry may be suffering through a capital crunch, but not all pot stocks are created equal.  

The cannabis industry has undergone an explosive level of growth over the last several years, which recently led Grand View Research to predict the global marijuana market could swell in value to USD 66.3 billion by 2025.

However, the situation took a turn for the worse in late 2019, when the cannabis sector entered into a global slump that has continued to linger into 2020.

The situation was then further exacerbated by the arrival of the COVID-19 pandemic, which has begun to put pressure on the international markets thanks to a succession of quarantines, travel bans and import restrictions.  

If I were a distributor buying a product from China, I would want to know a lot about the manufacturing practices of that manufacturing facility. Are they wearing masks? Are people sneezing on the things they're putting together? Are they testing employees for the virus? What actions are they taking? It's a real issue that's not just going to affect cannabis. National Cannabis Industry Association Director of Public Policy, Andrew Kline

As a result, many once powerful pot stocks have seen their share price crumble in response to the market crash. Although, this is to be expected, as the still-embryonic nature of the cannabis industry means that it is prone to increased spikes in volatility during times of uncertainty.

At this point, many of the biggest cannabis companies on the playing field are currently trading at penny stock prices, and if this surprises you, its important to remember that while the term penny stock originally referred to any stock that traded for below $1 per share, over time this definition has been broadened to include all stocks that trade for less than $5 apiece.

Companies that fall into the penny stock range also tend to be highly speculative in nature, and often come with a host of other risks such as substantially lower liquidity levels.

Liquidity refers to an individual stock's capacity to buy or sell an asset without causing a significant change—either positive or negative—to the asset's price. This means that a company with high liquidity levels can quickly sell off an asset without much of a reduction to its share price, while the value of a stock with low liquidity will conversely take a significant hit.

And unfortunately this issue has never been more important, as the cannabis industry is currently in the middle of a cash crunch, which saw overall capital raises for public and closely held weed companies fall by 20.3% in 2019, according to data from Viridian Capital Advisors.

Luckily, not all pot stocks are created equal, and while some will be unable to weather the storm, others are poised for significant growth over the next 12 months. That's why we've taken care of the difficult part and identified several penny pot stocks that we think are primed for massive growth in 2020.

Disclaimer: Past performance is not an indicator of future performance.

Liberty Health Sciences

Liberty Health Sciences Inc. (CSE: LHS) is a Florida-based provider of high-quality cannabis products. The company produces a variety of premium flower products—as well as more discrete options like capsules and transdermal patches—along with pods for the PAX Era, which is one of the most well-known vaporizers on the market.

Liberty Health Science's dispensary's also offer private consultation rooms for personalized one-on-one healthcare support that is directly tailored to the patient's needs.

The company's manufacturing efforts are underpinned by its state-of-the-art LHS 360º Innovation Campus, which features the latest cutting-edge extraction and processing equipment, as well as more than 300,000 square feet of growing & production space.

The third quarter of fiscal year 2020 has continued to show positive results. We are pleased with the results, which are made possible due in part to our loyal patients in Florida and our dedicated and knowledgeable staff working throughout the state. Liberty Health Sciences CEO, Victor Mancebo

This has allowed Liberty Health Sciences to engage in large scale production and meet its projected market demand approximately one year earlier than original predicted, while also making the company into the lowest-cost cannabis producer in the state.

In fact, the company represents the cannabis industry's only pure play on the Florida market and recently reported a record net income of $6,891,713—along with positive free cash flows—during its 2020 third quarter financial report.

This year-on-year revenue increase was driven by the opening of new dispensaries and cannabis delivery locations, coupled with an increase in same store sales volume, and the ongoing growth of Florida's medicinal cannabis patient base.

According to the former CEO of Liberty Health Sciences, George Scorsis, the company is "expanding exponentially and has become a formidable player in the Florida market."

"As we expand our footprint, we remain laser focused on the customer experience. We always place the customer at the forefront of everything we do—from growing and cultivating cannabis, to processing, extraction and developing branded cannabis-related products—the customer always comes first."

"We control our entire supply chain, from seed to sale and beyond," Scorsis said.

Disclaimer: Past performance is not an indicator of future performance.

Supreme Cannabis

Supreme Cannabis Company (TSX:FIRE) is a Canada-based licensed producer that has been enjoying significant success with its unique business strategy.

The company cultivates high quality cannabis for both the medicinal and recreational sector in Canada, however it operates in each market using a very different commercial model.

As opposed to selling its medicinal cannabis directly to retailers—or the Canadian Provinces—Supreme operates in the wholesale space by selling its premium 7ACRES product to other licensed producers.

In the first quarter of fiscal 2020, we operated through challenging market conditions while integrating new businesses and product planning for the second half of the year. Despite these challenges, in the quarter we improved production operations to generate industry-leading margins of 62% and made the strategic decisions necessary to position our businesses for meaningful revenue generation from flower, flower convenience products and select derivative products in the remainder of fiscal 2020. Supreme Cannabis CEO, Navdeep Dhaliwal

Conversely, Supreme's 7ACRES recreational cannabis is sold to provincial wholesalers in all but two of the Canadian provinces, allowing for significantly scalability without the need for patient acquisition, retention and fulfilment, all of which can incur substantial additional costs.

Supreme's 7ACRES product range also operates in the premium end of the cannabis market—typically retailing for up to $10-14 per gram—which should help to ensure the company continues to enjoy steady cashflow and revenue intake.  

Supreme took also hit several major milestones in 2019, including the acquisition of a global wellness brand, Blissco Cannabis Corp, and a subsequent announcement that Supreme would also be acquiring Truverra Inc.

This added another significant asset to Supreme's arsenal, as Truverra has enjoyed considerable success servicing the Canadian and global cannabis market through its wholly owned subsidiaries, Canadian Clinical Cannabinoids Inc and Truverra Europe.

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Supreme locked down another game-changing deal in June 2019, when it secured a partnership with Pax Labs. The agreement saw Supreme Cannabis become a foundational brand partner and official supplier of the PAX Era vaporizer in the Canadian market, providing a massive boost to the company's brand building efforts.

The company also recently launched its first product in collaboration with Blissco—a new full-spectrum CBD oil known as Pūr Dew—allowing Supreme to further diversify its commercial offering which currently includes both 7ACRES dried flower KKE high-THC cannabis oil.

"We are excited to expand our product offering to include CBD, arguably one of the fastest growing product segments on the market. As Blissco's first CBD oil, Pūr Dew offers consumers full-spectrum CBD and USDA certified organic MCT coconut oil," Supreme Cannabis CEO Navdeep Dhaliwal said.  

"Our team worked incredibly hard to provide consumers with a product that retains the benefits of the plant and the natural terpenes. Pūr Dew can be taken directly or mixes well into beverages, such as smoothies. We are excited for consumers to try Pūr Dew."

Disclaimer: Past performance is not an indicator of future performance.

Indiva Limited

Indiva Limited (TSXV:NDVA) operates as a worldwide family of cannabis brands that sells its products to both Canadians and consumers around the world. The company also avoids the hassle of distributing its products—which includes Ruby Cannabis Sugar, Sapphire Cannabis Salt, and the award-winning Bhang Chocolate brand—by making use of a variety of licensing agreements and joint ventures.

Indiva made significant progress in 2019, which starting with the announcement that the company had secured an $11 million bridging loan from an institutional lender, which was used to fund facility expansions, bulk biomass purchases, extraction and encapsulation equipment purchases, and general working expenditures.

During this time the company also secured a lucrative partnership with global cannabis provider, TerrAscend, which will see Indiva apply its extraction and refinement services to 800kg of dry cannabis flower per year.  

We are very excited to begin working with the Dycar team and creating new products that meet and exceed customer and consumer expectations. Dycar and Indiva are very much aligned in our shared pursuit of delivering the very best products to market. Indiva Limited President and CEO, Niel Marotta

This was then followed by the announcement that Indiva had secured an approval from the Canadian Government to add an additional 10,000 square feet to its' production space, including three new grow rooms and two additional processing rooms.

In February 2020 the company was also granted an Edibles, Extracts and Topicals sales licence by Health Canada, which enabled it to begin delivering "Legalization 2.0" products to the Canadian market.

According to the President and CEO of Indiva Limited, Niel Marotta, the sales licence is, "transformational for Indiva as it allows us to enter new markets and product categories and distribute products nationally."

"We believe that delivering Canadians truly exceptional and innovative products is our calling and through that passionate pursuit, we can normalize cannabis use. There are millions of Canadians who would like to consume cannabis, but prefer to avoid smoking."

"Indiva intends to be the solution for those consumers by providing chocolate, sugar, salt, fruit chews and more. We look forward to fulfilling existing purchase orders and having our products available to consumers, on shelves and online, at the earliest opportunity," Marotta said.

Indiva also managed to close out 2019 with another significant milestone, after the company finalized a white-label manufacturing agreement and financing agreement with Dycar Pharmaceuticals in December 2019.

Under the agreement, Indiva will gain access to an initial round of non-dilutive financing—worth approximately $3.1 million—in exchange for the manufacture and distribution of Dycar-branded cannabis products from its fully licensed Ontario facility. However, this agreement may also be renewed by Dycar for a further two terms, allowing Indiva to take advantage of up to $4.5 million in additional non-dilutive financing.

"We are delighted to add such a high-quality partner to our B2B platform," Marotta said.

This bargain-basement pot stock could become a big winner in 2020.

Although the US market took a battering in 2019, an increasing number of states are legalising cannabis for recreational use, which is generating thousands of new jobs and millions in tax revenue.

Alabama and Kentucky are both on the verge of legalizing medicinal marijuana and the recent launch of legal adult-use sales in Illinois has seen cannabis products flying off the shelves at an astounding rate.

Luckily for investors, there is one pot stock that its perfectly positioned to capitalise on the rapidly expanding US recreational cannabis market.

The company has already assembled a robust portfolio of commercial assets and has locked down partnerships with multiple US market leaders. However, the industry-wide downturn has left it trading at dirt cheap prices.

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Hugo Gray
Hugo Gray

Hugo Gray is a Melbourne-based journalist with a body of work that covers a diverse range of topics, including immigration law, sex technology, and now the rapidly expanding cannabis industry.

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