Our Supreme Cannabis Stock Prediction in 2019 (Buy or Sell?)
Investors looking for “the next big thing” are drawn to marijuana stocks. And why not? The legalization of cannabis is one of the greatest investment opportunities in a generation.
However, when the news is out about an industry’s good fortunes, the rest of the investment herd piles in. The boom-bust cycle inexorably kicks in.
That brings us to the topic of Supreme Cannabis (OTC: SPRWF, TSXV: FIRE), a $459.5 million cap producer of cannabis. Hot stock or disaster waiting to happen?
The dilemma with marijuana plays is trying to determine which ones become lasting businesses. Many will simply vanish into the vortex of penny stock land.
Canada’s nationwide legalization of marijuana in 2018 boosted the sector. Meanwhile, several U.S. states have legalized weed to various degrees and the pot lobby is strong.
Who succeeds and who doesn’t? Our SPRWF stock prediction will examine all of these issues and provide answers.
What Is Supreme Cannabis?
Toronto-based Supreme Cannabis produces and distributes consumer-centric proprietary cannabis plant products.
Supreme owns 7Acres, the first licensed producer in Canada for high-quality cannabis. The model is business-to-business; 7Acres doesn’t deal with packaging, retail sales, doctor education, or clinics.
Instead, Supreme Cannabis sells its product at the business level and lets it filter down to whatever market desires it.
How Has Supreme Cannabis Stock Performed?
What is Supreme Cannabis’ Stock History?
- Over the past 12 months, SPRWF shares have fallen 40% whereas the S&P 500 has lost 6%.
- Over the past two years, SPRWF shares have gained 16.1% whereas the S&P 500 has gained 14.5%.
How Has Supreme Cannabis Performed in 2017/2018?
- In 2017, SPRWF shares gained 55% whereas the S&P 500 gained 19.4%.
- In 2018, SPRWF shares fell 40% whereas the S&P 500 lost 7.5%.
Who Are Supreme Cannabis’ Rivals?
Canopy Growth (NYSE: CGC)
Based in Smith Falls, Canada, Canopy Growth grows and sells medical cannabis in Canada and around the world. Its products include dried flowers, oils and concentrates, softgel capsules, and hemps.
The company (market cap: $15.5 billion) offers its products under the Tweed, Black Label, Spectrum Cannabis, DNA Genetics, Leafs By Snoop, Bedrocan Canada, CraftGrow, and Foria brand names.
Founded in 2014, Canopy Growth by 2016 was Canada’s first cannabis “unicorn” with a $1 billion dollar valuation. The company went on to become the first federally regulated, publicly traded cannabis producer in North America.
Aurora Cannabis (NYSE: ACB)
Headquartered in Edmonton, Canada, Aurora Cannabis produces and distributes a wide variety of medical marijuana products.
The company’s products consist of dried cannabis and cannabis oil, CanniMed vegan capsules, and hemp products. The company also sells vaporizers, vaporizer accessories, and herb mills.
Aurora Cannabis (market cap: $6.9 billion ) operates in 22 countries and holds partnership agreements with several drug retail chains for the distribution, sale, and marketing of medical cannabis products.
Scotts Miracle-Gro (NYSE: SMG)
Scotts Miracle-Gro (market cap: $4.1 billion) is famous for its lawn care products. Scotts offers products that include hydroponics, plant cultivation and plant nutrients through its Vermicrop Organics brand.
SMG also offers specialized lighting products through its Gavita Horticultural Lighting and Agrolux brands, and also sells filters, fans and accessories.
This lawn care juggernaut has made major investments in marijuana-based companies and poses significant competition to the smaller fry.
Notably, Scotts owns 80% of marijuana industry player Aerogrow International (OTC: AERO).
Will Supreme Cannabis Company Go Up in 2019 (Should You Buy?)
The marijuana investment argument relies on one key factor: potential.
Will cannabis be a sustainable multi-billion dollar market? Is it all hype? How much will consumers accept pot as part of everyday life?
The legalization drive, thanks to the pot lobby, indicates that the market will be huge.
Polls consistently show that most Americans want marijuana legalized. Now that marijuana has been legalized in Canada, Supreme Cannabis has a lot to cheer about. And it’s not likely that Canada will reverse itself, because marijuana sales in the country are on track to generate about $5 billion in annual tax revenues. Meanwhile, on the medical side, Health Canada says registered clients are growing at a 10% monthly clip.
Is Supreme Cannabis stock undervalued? It has no net income. The company’s market valuation equates to about 31x revenue, which is absurdly high.
The only reason to say that Supreme Cannabis might be undervalued is…potential. Here’s a video that summarizes the potential of the company.
Will Supreme Cannabis Go Down in 2019 (Should You Sell?)
Supreme Cannabis entails many serious risks.
Over the past 12 months, Supreme generated about $12 million in revenues, leading to about $9.8 million in gross profit. But the company incurred an $11 million net loss. Supreme is burdened with considerable capital expenditures; free cash flow is negative to the tune of $92 million. The company has $31.1 million in debt but only $48 million in cash on hand.
Much of the risk derives from the hype that accompanies marijuana stocks. Most investors see the obvious potential but few stop to look at the dangers. The big obstacle is that marijuana is a commodity.
Ever notice how TVs got bigger, their resolution got better, and the prices would start high but then quickly fall as new models came out? That’s because they’re commodities. There’s little to distinguish the products. It’s like two kids selling lemonade on the same street. They’ll get into a price war because there’s no difference.
That’s the potential problem with marijuana. After all, it’s only a plant.
The crucial factors that distinguish commoditized products are marketing and customer service. While the quality of marijuana may be a distinguishing factor for a while, that gap will narrow quickly.
Meanwhile, the U.S. may experience a political backlash against marijuana legalization. Social conservatives, who dominate thinking in the White House right now, oppose legalization. Unforeseen health risks may arise, too.
The black market has expanded, as the criminal element chooses to grow legally and then sell out of state illegally. Felony marijuana arrests are increasing.
The more information that comes out, the more likely it will be that these bad effects take a toll. If people buy into marijuana stocks and the legalization trend halts, pot stocks will tumble.
Also, remember that Supreme Cannabis is losing money.
Overall Supreme Cannabis Forecast and Prediction for 2019
Marijuana stocks will probably experience a roller coaster ride this year. Those firms that obtain outside investment are likely to grow and meet demand. But Supreme Cannabis has no partners, whereas several rivals have big consumer names backing them.
Supreme Cannabis is losing money and offers nothing special. Marijuana remains an exciting investment opportunity, but the weakest companies are about to get weeded out (pun intended).
When the cannabis sector shake-out finally occurs in 2019, Supreme Cannabis probably won’t survive. The company may have the magical word “cannabis” in its title, but it has red ink on its balance sheet. Avoid the stock.