Since Canada legalized cannabis last October, pot stocks have been in for quite the ride. Scandals have dragged down some of the biggest and most promising names in the industry, such as CannTrust (TSX:TRST) (NYSE:CTST) and Canopy Growth (TSX:WEED) (NYSE:CGC), while some of the more promising small stocks have failed to meet the hype. Aleafia Health (TSX:ALEF) (OTCQX:ALEAF) is one such penny pot stock that has been a victim of market overvaluation, with Aleafia stock tanking 75% from a pre-legalization peak.
Strong Gains for Aleafia Stock Earlier This Year
It's easy to blame market overvaluation or underperformance for Aleafia's falling share prices, but it is important to note that the company engaged in a stock dilution in March in order to complete its $173 million CAD takeover of Emblem, a medicinal cannabis firm. The takeover was a good move for Aleafia Health structurally, as it will eventually increase its production capacity by 138,000 kilograms a year, and Aleafia stock made some of its strongest gains earlier in the year as a result, rising as much as 80% in the first two months of the year.
So What has Happened Since?
As a company, Aleafia Health has actually performed pretty strongly during 2019. In August, the company reported a revenue increase of a massive 159% from the previous quarter with CEO Geoffrey Bernic claiming "the best is yet to come," and yet still Aleafia stock was in the red. Earlier this month, the company announced the acquisition of an additional 60 acres of property for cultivation purposes, significantly increasing its production capacity, yet this also failed to move Aleafia's shares any great deal.
The biggest hindrance for Aleafia stock has perhaps been the number of assets under its portfolio that are yet to reach full capacity. The company's largest facility in Niagra was purchased for $10 million CAD back in May 2018 and yet is still months away from becoming fully licensed and operational. Added to this, the Emblem plant in Paris, Ontario currently has a small production capacity of 2,000 kilograms, and again it will be a few months before this site is expanded and reaches full production.
While Aleafia stock has been struggling as of late despite the good news, it looks as though investors are simply waiting for the company's operations to reach full capacity before making any major moves.
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