At the beginning of the year, many cannabis investors looked to 2019 as a game-changing 12 months for cannabis as an industry. Given it was the first full year of legalization in Canada, almost everyone expected to see massive returns on their investment as the country rushed to dispensaries to take advantage of the infant market. Things haven't quite panned out that way, with a combination of factors ranging from supply issues, high-profile scandals and a lack of dispensaries, turning the "green wave" into more of a ripple.
That doesn't mean that the legal cannabis market in Canada is a lost cause. Far from it, in fact, and with the industry slowly but surely finding its feet, 2020 looks set to be a huge year for pot stocks with the second wave of legalization set to blow the market wide open thanks to its range of cannabis derivatives, such as edibles, vapes, and infused beverages all arriving on stream in the next few weeks.
If you're an investor looking to make some gains from stocks that are somewhat off the beaten track, pot penny stocks might just be the option for you. Penny stocks are valued under $5, and while they come with considerably more risk than some of the bigger stocks, the potential can be hard to resist for some investors. When you consider that the legal cannabis market is barely a year old, pot penny stocks come with even more potential, given that the market looks only set to go from strength to strength in the next 12 months.
Let's take a look at the stocks catching our eye ahead of the new year.
Auxly Cannabis Group Inc (TSXV:XLY) (OTCQX:CBWTF)
Auxly's stock performance in 2019 looks a little rocky, but the actual operational performance of the firm makes it a really eye-catching pick for a big year in 2020. Some analysts have even singled out this pot penny stock to be the biggest gainer of the year, with revenue expected to climb from just $5.8 million CAD to $184.3 million CAD in the next 12 months. That's an increase of over 3,000%, which is impossible to ignore from an investor standpoint.
Auxly Cannabis Group has a host of partnerships lined up that will stand it in good stead going forward, including a joint venture with Sunens to build a 1.4 million square foot greenhouse, which is expected to be operational in Q2 2020, and a deal with hemp farmers on Prince Edward Island, which will see the company receive all the hemp biomass grown on a 300-acre farm.
However, the most impressive deal on Auxly's books is a $123 million USD partnership with British tobacco giant Imperial Brands (OTCQX:IMBBF). This partnership will give the Vancouver pot company access to Imperial’s global licenses for its vaping technology. In exchange, Imperial will receive a 19.9% stake in Auxly stock at a price of $0.81 per share, which is significantly higher than Auxly’s current value of $0.64.
The Green Organic Dutchman Holdings (TSX:TGOD) (OTCQX:TGODF)
TGOD started 2019 off in an impressive manner, more than doubling in value in the first three months of the year. It even held its own over the summer months as the CannTrust scandal wreaked havoc on pot stocks across the board. The second half of the year hasn't been so kind to The Green Organic Dutchman, however, as it ran into financing problems that have led to concerns that it may not be able to complete construction on its $100 million CAD Ancaster facility.
However, in recent weeks, the company has put those financing fears to bed after announcing that it had secured $103 million CAD in financing by way of a sale-leaseback agreement on its Ancaster site. On top of this, the company will raise a further $22 million CAD by way of a bought deal offering, ensuring TGOD is well-capitalized to realize its growth strategy in 2020. This pot penny stock is currently trading for $0.84, and with some pretty sizeable supply deals signed for the coming year, 2020 could be TGOD's year.
The Supreme Cannabis Company (TSX:FIRE) (OTCQX:SPRWF)
Supreme has probably seen its stock price suffer the most in 2019 of the three stocks on this list, but smaller cannabis companies have generally been the biggest victims of the industry's broader struggles. However, The Supreme Cannabis Company has still performed pretty well, with its fourth-quarter earnings showing a 90% increase in sequential revenue and adjusted EBITDA rising from a loss of $1.6 million CAD to positive $3.2 million USD year-over-year.
The company is fast becoming a name to be reckoned with in the premium cannabis space, and experts believe that by 2020, the company might be in a position to challenge some of the bigger companies in the industry. The only hindrance to growth is the company's production capacity of 50,000 kg, which is dwarfed by its bigger rivals. However, the market is about to be faced with a massive oversupply, and so, wholesale purchasing could become a more viable option than investing huge capital in expanded cultivation space.
Those are our picks of three pot penny stocks with a big 12 months potentially ahead. Have any other pot stocks caught your eye?
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