Auxly stock is currently selling for a meager $0.73 CAD on the TSXV. This low-priced cannabis penny stock is a potential opportunity right now as a sector-wide lull exposes some long-term plays. With a mean consensus of "Buy" and a price target set at $1.55 CAD, according to MarketScreener, should Auxly Cannabis Group (TSXV:XLY) (OTCQB:CBWTF) be on your radar?
Auxly Stock: Reasons For the Decline
With a market cap of $325 million, Auxly stock is trading at $0.73 CAD. From price highs in March, shares have lost roughly 30%. One reason for the drop is the fact that Auxly has a significant amount of shares outstanding. The company has issued a lot of stock to raise funds for its bevy of licensing deals. By doing this, it has diluted the existing shareholder position, which is never looked on kindly by the market.
According to Gurufocus:
"Auxly Cannabis Group's average diluted shares outstanding for the quarter that ended in March 2019 was 587.25 million."
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Another reason for the stock decline is that the company has strategically decided to hold back a large percentage of its dried flower for use in cannabis derivative products such as edibles and drinks. Derivative sales won't be legal until about mid-December, so Auxly stock has suffered because of the short-term effect this decision will have on the company’s upcoming operating results.
Shares have reacted negatively despite the long-term potentials this decision will bring for Auxly.
A year ago, Auxly diversified its model to also became its own grower, supplier, and seller of cannabis. Previously it had only offered to finance other cultivators in exchange for dried flower at below-market rates. Auxly would then sell this flower at a higher margin and pocket the difference as profit.
But now, while still benefitting from its dozen licensed partners, Auxly has its own joint venture and wholly-owned grow projects in its portfolio.
A result of all its efforts means that Auxly Cannabis Group is expecting to bring about 170,000 kilos of cannabis to market annually. To put that in perspective, there are roughly only five or six individual cannabis growers that will top that—but they are all backed with much larger market caps.
This is one major consideration for investors moving forward. Auxly is a long-term winner... potentially. Nobody can foretell how the market will go, but there is something to hold on for here.
Featured Image: Canva
