Why the Best Cannabis Stocks are Still in the Extraction Sector

Best Cannabis Stocks

It’s no secret that for years, extraction companies have been the safest play for cannabis investors. While companies in almost every other pot-centric-sector posted losses, extraction companies remained the best cannabis stocks on the market.

In fact, of the 100 companies in the BI Global Cannabis Competitive Peers index, two of the top three spots went to Canadian extractors. The BI Index in total fell 50 percent over the same period.

Why Extractors are the Best Cannabis Stocks

Plenty of the biggest, most diversified cannabis companies—like Canopy Growth  (TSX:WEED) (NYSE:CGC) and Aurora Cannabis (TSX:ACB) (NYSE:ACB)—are constructing their own extraction facilities. Many industry observers, however, predict that the infrastructure simply won’t suffice to meet future demand for cannabis derivatives.

That’s where pure-play extraction companies come in. These companies don’t actually cultivate cannabis themselves, nor do they retail directly to consumers. Instead, they function as the middle-man for the cannabis supply chain.

Extractors purchase dried cannabis, extract the oil-like substance, which contains THC or CBD, and sell it back to producers. This is how they’ve established themselves as the best cannabis stocks investors can buy.

According to Beau Whitney, a senior economist at the cannabis research firm New Frontier Data:

“Cannabis extraction is a huge growth opportunity in Canada. The reason I say that, is because if you look to the U.S., it was not uncommon to see 75% of the market consuming cannabis flower years ago, but as product offerings became more differentiated, we saw the market for flower drop to around 40%, and the market for oils surge to over 60%.”

So, which stocks are leading the lucrative extraction section? Let’s take a look.

MediPharm Labs is the Leading Extraction Company

In its third-quarter fiscal report, released November 2019, MediPharm Labs Corp. (TSX:LABS) (OTCQX:MEDIF) reported pre-tax income of $5.4 million.

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This is a sizable increase from $4.1 million posted in the previous quarter. It also makes LABS one of the biggest and best cannabis stocks out there.

MediPharm currently has more than 20 supply, purchase, or sales agreements with a number of licensed producers. This includes one deal with a total potential aggregate value of over $48 million. Its partnerships are often with some of the biggest companies on the market, such as Tilray Inc. (NASDAQ:TLRY).

In a recent editorial, Technical420 said LABS is “positioned to become the clear cut global leader in cannabis extraction in 2020.” This is primarily due to the increased demand for cannabis derivatives created by “Legalization 2.0“.

The company has also made recent inroads in Australia, and analysts expect MediPharm to expand into additional international markets this year.

LABS is definitely the best cannabis stock in the extraction sector, making it one of the most important pot stocks to keep an eye on.

Other Extractors Worth Watching

Another top-of-the-line extraction company is The Valens Company (TSXV:VLNS) (OTCQX:VLNCF). For its third quarter, the company posted $5.9 million in net income.

Like LABS, VLNS has a number of contracts with major cannabis producers. Both companies also make white-label versions of cannabis consumable products.

According to Charles Taerk, CEO of Faircourt Asset Management:

“The cultivators have spent so much capital on the agricultural part of this business, whereas MediPharm and Valens and a few others that are getting into it are doing the value-added processing.”

Yet another extractor worth watching is Nextleaf (CSE:OILS) (OTCQB:OILFF). Nextleaf enjoys a stacked IP portfolio and 11 patents from four international patent offices. On top of that, it has just begun earning revenue, meaning its potential will likely become apparent later this year.

The cannabis space has had its ups and its downs, but these stocks keep showing value. Extractors serve an important role in the industry and tend to do well by their shareholders. Keep that in mind when looking for new cannabis stocks to pick up.

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Featured image: DepositPhotos © rbspace

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