For $0.76 CAD on the TSXV, is the Auxly stock low price tag worth it? Shares of the small-cap cannabis producer, Auxly Cannabis Group (TSXV:XLY) (OTCQX:CBWTF), have priced low in 2019. But the company is arguably worth a lot more than its current $460 million CAD market cap and share value.
Let's check this out.
Auxly Stock: Auxly Cannabis Streaming Company
Auxly Cannabis Group started life as a licensing or "streaming" company. It provided capital to up-and-coming growers to expand or develop greenhouses. In exchange, it received a percentage of production at below-market cost. It could then turn around and sell this marijuana at average retail prices, and the difference would be pocketed as profit.
At first, this was its sole business model, but it came with several issues, so Auxly began to rethink its operations in mid-2018. Now, the company is involved in joint ventures and has developed its own cultivation farms too.
The culmination of its efforts means that Auxly Cannabis Group is now expecting to sell roughly 170,000 kilograms of cannabis annually. For its tiny size, that is a figure that places it in the top ten Canadian cannabis sellers; quite a remarkable feat.
For this reason, Auxly could be considered "a pretty important player that can move the weed market." But why, then, is Auxly stock not reflecting this?
Patience is Required
There are two reasons in particular, and one goes back to its original business model:
Many of Auxly's licensed partners "won't have their production on line until later in 2019 or sometime in 2020."
A result of this means that for some time now, Auxly has received little to no revenue. It has also had to offer more shares to raise capital to recoup losses from expansion and investing. Investors will likely have to wait until 2020 before Auxly begins to receive revenue from its multiple streaming deals.
Further, the company has been holding back a large percentage of its dried cannabis flower for derivatives processing. Expected to be legalized in October, the derivatives market will allow the sale of additional consumption methods such as drinks and edibles. In preparation, the company is putting its sales potential at risk in the short-term, and this has also reflected poorly on Auxly stock.
However, the long-term gains from the cannabis derivatives market are arguably worth the pain.
There is clear potential in Auxly stock; however, it will require immense patience from investors.
Featured Image: Canva