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Stone Fox Capital Advisors is a registered investment advisor founded in 2010. The firm offers portfolio management with a focus on opportunistic stocks providing secular growth trends at an affordable value. An emphasis is placed on fundamental analysis though charts are used for timing entry and exit points. Mark Holder graduated from the University of Tulsa with a double major in accounting & finance. Mark has his Series 65 and is also a CPA. Invest with Stone Fox Capital's model Net Payout Yields portfolio on IB Asset Management as he makes real time trades. The site allows followers to duplicate the model portfolio in their own brokerage accounts. You can find the portfolio and more details here: Follow Mark on twitter: @stonefoxcapital

3 Under-The-Radar Cannabis Stocks Heading Into 2020 on a Bright Note

During a volatile period for the cannabis market, a few under the radar stocks shined. The market hasn’t really noticed with a general focus on only the stocks listed on the major stock exchanges that struggled mightily during the September quarter due to weakness almost solely in the Canadian cannabis market.

As the global market heads toward $20 billion in sales next year, investors should look for niche players that offer better valuations and potentially unique market opportunities. These companies might have catalysts that include acquisition targets by the big cannabis stocks in either the U.S. or Canada.

Stock market woes tend to hit most stocks equally regardless of quarterly results and growth expectations. A stock trading at yearly lows despite meeting financial projections is worthy of further review.

The cannabis stocks with market valuation in excess of $1 billion generally have strong investor coverage. We’ve delved into three under-the-radar cannabis companies with market valuations that are below $1 billion and positioned for a big rebound in 2020:

iAnthus Capital (ITHUF)

iAnthus Capital is the first of the under the radar cannabis players. The company has a market cap below $350 million with 266 million shares outstanding despite reporting a quarter with official revenues of $22.3 million and easy access to pro-forma revenues of $30.9 million.

The U.S. multi-state operator (MSO) has an easy path to 2020 revenues topping $250 million. The company now has 29 system-wide dispensaries led by 11 in Florida with 11 more stores under lease.

iAnthus Capital is in the process of closing the deal for Sierra Well that only cost $27.6 million for annualized revenues of $17.6 million. The premier Nevada operator will add two dispensaries and two cultivation and production facilities to the key Nevada market.

Like other stocks, iAnthus Capital is trading at the recent multi-year lows. The stock is down over 75% from the highs providing the opportunity in the beaten down stock as the MSO has plenty of catalysts from federal regulations to potential consolidation in the U.S. cannabis industry.

Even without such events, the MSO has projections for reaching positive and sustainable EBITDA and operational free cash flow in 2020. A differentiator in the market next year is the ability of these Canadian and U.S. companies to become self-sustaining considering the bigger questions regarding access to capital with the unknown regulatory environment.

Wall Street’s confidence backing this cannabis player is strong, with TipRanks analytics showcasing iAnthus as a Strong Buy. Based on 3 analysts tracked in the last 3 months, all 3 rate the stock a Buy. The 12-month average price target stands tall at $7.06, marking a huge upside potential of 440% from yesterday’s closing price. (See iAnthus’ price targets and analyst ratings on TipRanks)

Abacus Health Products (ABAHF)

Abacus Health Products recently got notoriety for signing former NFL player Rob Gronkowski to a promotional deal for their CBD products. Gronk has a history of major injuries from his NFL playing career providing some substantive support for the benefits of CBD products for pain management and recovery with athletes.

For Q3, Abacus Health grew revenues 97% over last year to $4.0 million. The company sells CBD products in the U.S. with current gross margins topping 60% that will be attractive to investors as the company scales revenues.

The CBD firm is still generating relatively small quarterly losses as the CBDMEDIC products expand into the largest three pharmacy chains. Abacus Health forecasts contracts with 7,000 retail pharmacy and supermarket locations across 31 states. The incredible part of the story is the CBDMEDIC products only reached 3,000 locations in 24 states at the end of June while the company now has just 20% penetration of the 34,500 retail locations within these chains.

Similar to Aleafia Health, Abacus Health has a decent cash position with a $28 million balance. Depending on how the CBD market grows in the U.S. based on how the FDA moves forward with regulating the products will impact whether the company needs to raise additional funds.

The stock has a market value of only $95 million with some analysts listing 2020 revenue targets of over $50 million. The stock isn’t for risk adverse investors considering the small market size and the 70% decline from the peak back in early April.

Abacus Health has a small, but vocal camp of bullish analysts that have the stock rated a Buy. Meanwhile, the $10.25 price target suggests an upside potential of 130% from the current share price. (See Abacus Health stock-price forecast and analyst ratings)

Aleafia Health (ALEAF)

Aleafia Health was one of the few Canadian companies to actually beat analyst expectations in Q3. The company only reported quarterly revenues of C$5.3 million, but the numbers were up 34% sequentially from C$4.0 million.

The company has the claim to fame of the lowest cost production with a reported $0.08 cost per gram at an outdoor facility. The more important cannabis revenues surged 64% sequentially to C$4.2 million, up from C$2.5 million. On top of this, Aleafia just recieved a C$7.1 million order to provide a huge boost to Q4 revenues.

Aleafia Health is still in the production ramp up period with current licensed production of 32,600 kg and the planned cultivation capacity reaching 129,500 kg once obtaining regulatory approval for the Niagara Greenhouse and additional outdoor grow space. The low outdoor cost was achieved on only 10,360 kg of dried flower cultivation and further scale should lower costs even more.

The biggest concern with Aleafia going into the quarter was the substantial losses in relation to revenues. The Q3 adjusted EBITDA loss was cut substantially to only C$2.5 million in the quarter. The company was able to cut expenses by 30% in the sequential quarter while growing revenues at a similar clip.

With the losses cut and a cash balance of C$57 million, Aleafia Health appears poised to reach profitability with more growth. The stock has a listed market value of $135 million following a 75% collapse from 52-week highs above $2 back in February.

Minimal analyst coverage has the company achieving $53 million in 2020 revenues which are easily achievable with selling prices in the $4 to $5 per gram range while production ramps significantly next year. The low-cost production allows the company to better survive the current tough pricing climate in the Canadian cannabis market.

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