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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: http://ibkram.com/stone-fox-capital Follow Mark on twitter: @stonefoxcapital

This Cannabis Stock Takes Another Step on the Road to Becoming the Next Blockbuster


Harvest Health & Recreation (HRVSF) has stated plans of becoming the largest cannabis company in the world. Investors might actually want to invest behind the company following the $850 million buyout of Verano considering the size of the U.S market relatively to the rest of the world.

Massive U.S. Market

Due to a cobbled together state-by-state approval of medical and/or recreational cannabis use, the stock market tends to forget that the U.S. market has the largest market size. This country might lack federal approval, but California alone is a larger market than the other countries, Canada and Uruguay, with both medical and recreational cannabis approved.

The U.S. market in 2018 is estimated by Arcview Market Research to account for $11.0 billion out of the $12.9 billion global cannabis market. The U.S. market is set to control over 70% of the global market long into 2022 and beyond.

The recent purchase of Verano by Harvest Health sets the stock up for one of the largest valuation in the domestic market with a market cap of around $4 billion.

The company lacks the valuation of the large Canadian players on the major U.S. exchanges, but Harvest Health doesn’t lack for market opportunity.

More Scale

The Verano deal gets Harvest Health the scale needed to stick out from the crowded cannabis crowd. The company now competes with Curaleaf (CURLF) and Cresco Labs (CRLBF) for the most valuable U.S. cannabis firms.

More importantly, Verano helps give Harvest the massive scale to attract investors and make a leap forward in their plan of becoming the largest cannabis company in the world. After the deal closes, Harvest will have licenses to operate up to 200 facilities in 16 states and territories (Puerto Rico), including 123 retail dispensaries. The company will have 70 dispensaries and 13 cultivation facilities operational by the end of 2019.

Harvest Health already lists dispensaries in Arizona, California, Florida, Maryland and Pennsylvania with stores on the way in Massachusetts, Michigan, North Dakota and Ohio. One doesn’t need a lot of research to see access to even these limited states alone top the total market opportunity in Canada.

Source: Harvest Health merger presentation

As with a lot of the cannabis deals, the company provides sparse details on the acquired business other than being cash-flow positive operations with attractive cannabis licenses. For its part, Harvest Health has limited financials as well.

Though, it doesn’t hurt to have a CCO with vast industry experience including the position of CEO of Pabst Blue Ribbon, a leading American beer company.

Takeaway

The key investor takeaway is that Harvest Health & Recreation is on its way to becoming one of the most valuable global cannabis companies. The $850 million purchase of Verano helps accelerate that path, but the real key is the focus on domestic expansion and acquisitions where the market is quickly developing into the most valuable market in the world by far.

The stock has rallied from below $6 right before the merger announcement on March 11 to over $10 now. The stock is up over 70% in the matter of a month suggesting investors might want to let the stock cool off before looking for a long-term investment. Ultimately though, investors should favor backing a large company in the largest cannabis market trading at a fraction of a Canadian stocks needing massive international expansion in order to justify their stock prices.

To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here.

 

Disclosure: The author has no position in HRVSF. The information contained herein is for informational purposes only.

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