Our Acreage Holdings Stock Prediction In 2019 (Buy or Sell?)
When I was 12 years old, my dad took me to the local movie theater to see Woodstock, a film that blew my little adolescent mind. By the time the lights came up, I had outgrown Disney.
Marijuana, of course, played a prominent role in this Academy Award-winning 1970 documentary about the legendary music festival in upstate New York. During the Woodstock era, pot was an act of rebellion.
I particularly remember Arlo Guthrie singing a “subversive” song in the movie, about smuggling marijuana:
“Comin’ into Los Angeles
Bringin’ in a couple of keys
Don’t touch my bags if you please, mister customs man…”
And nowadays? Marijuana is becoming a mainstream consumer products industry.
As I’ll explain below, even conservative Republicans such as Attorney General William Barr, of Mueller report fame, are warming to marijuana legalization.
One promising cannabis stock in the news is Acreage Holdings (CSE: ACRG-U, OTC: ACRZF), an investment firm headquartered in New York City with diverse cannabis operations.
Cannabis industry leader Canopy Growth (NYSE: CGC, TSX: WEED) is in talks to acquire Acreage Holdings. If a deal comes to fruition, it would probably prove a huge boon for Acreage shareholders.
Based in Smith Falls, Canada, Canopy Growth (market cap: $19.6 billion) grows and sells medical cannabis in Canada and around the world. The possible merger is yet another sign that the marijuana industry is rapidly consolidating.
With a market cap of $2.5 billion, Acreage Holdings owns a portfolio of cannabis cultivation, processing and dispensing operations in the U.S. The company boasts a prominent profile, with several political celebrities gracing its Board of Directors, among them former Republican Congressman and Speaker of the U.S. House John Boehner.
Beltway insiders are getting behind Acreage Holdings and the so-called “green rush” of marijuana commercialization. But is Acreage and its star-studded board more hype than reality? Below is the straight dope (so to speak).
What Is Acreage Holdings?
Acreage Holdings went public on the Canadian Stock Exchange (CSE) in November 2018 at US$25.0 per share and raised US$314 million.
Acreage Holdings invests in entities that are involved in both recreational and medical marijuana. The company is currently one of the largest vertically integrated cannabis companies in the U.S., with more than 40 dispensaries and cultivation operations in 12 states.
How Has Acreage Holdings Stock Performed?
Year to date, Acreage Holdings has gained 18.3% compared to a gain of 15.7% for the S&P 500.
Who Are Acreage Holdings Rivals?
Curaleaf Holdings (CSE: CURA, OTC: CURLF)
Curaleaf Holdings, based in Wakefield, Mass., operates an integrated network of medical and wellness cannabis facilities throughout the U.S.
With a market cap of $6.1 billion, Curaleaf cultivates, processes, markets, and dispenses marijuana products in a range of forms, including flower, pre-rolls and flower pods, dry-herb vaporizer cartridges, concentrates for vaporizing, concentrates for dabbing, tinctures, lozenges, capsules, and edibles.
Founded in 2010, Curaleaf operates a network of 34 dispensaries, 12 cultivation sites, and 10 processing sites in 12 states.
Green Thumb Industries (CSE: GTII, OTC: GTBIF)
With a market cap of $3 billion, Green Thumb Industries manufactures and sells a broad variety of marijuana products in the U.S. The company’s cannabis products include flower, concentrates for dabbing and vaporizing, edibles, and topicals.
Based in Chicago, the company markets its products through third party retailers. The company currently owns and operates a chain of 73 retail stores under the RISE name.
Founded in 2014, Green Thumb went public in Canada in June 2018.
MedMen Enterprises (CSE: MMEN, OTC: MMNFF).
Based in Culver City, California, MedMen cultivates, produces, distributes, and retails recreational and medicinal cannabis. Founded in 2010, the company has greatly expanded beyond its initial markets of California, Nevada, and New York.
Upon the close of various pending transactions and acquisitions, MedMen will have 32 operational dispensaries, and licenses for 19 factories across 12 states. The company’s market cap stands at $1.4 billion.
Will Acreage Holdings Go Up In 2019 (Should You Buy)?
Acreage Holdings’ Board of Directors is an impressive-sounding roster of former corporate and political leaders, including former House Speaker John Boehner; former libertarian Republican Governor of Massachusetts Bill Weld; former International Business Machines (NYSE: IBM) Chief Financial Officer Douglas Maine; and former Conservative Prime Minister of Canada Brian Mulroney.
Boehner is an especially ironical choice. A conservative from Ohio whose preferred libation is Merlot wine, Boehner was for years anti-pot and repeatedly vowed to oppose legalization.
Boehner had a change of heart, though, when he left national politics and walked through the lucrative “revolving door” whereby politicians transition from public to private life.
Boehner now serves as the face of Acreage Holdings, holding forth at marijuana conferences on the virtues (medical, recreational and financial) of cannabis.
The 2018 U.S. midterm elections were kind to the marijuana industry, as many social conservatives who oppose marijuana legalization lost their bids for reelection and were replaced by more liberal politicians. The Democratically controlled House is marijuana-friendly.
Powerful, multi-year tailwinds are propelling marijuana companies, as depicted by this chart:
Acreage Holdings shows robust revenue growth and it’s plowing that money back into the business for future expansion. Total cash on hand (most recent quarter) is $74 million, sufficient for additional acquisitions as Acreage seeks to boost production and its dispensary footprint. This marijuana firm appears to be on an upward trajectory this year.
Will Acreage Holdings Go Down In 2019 (Should You Sell)?
Marijuana presents huge opportunities for profit. But the industry is generating a lot of froth and will soon consolidate.
The herd mentality is hard to resist; most investors behave like lemmings and march right off a cliff. They succumb to the “group think” of the media, friends, the Internet, colleagues, family — everyone telling them what stock or investment to buy, everyone ready with brilliant advice.
But here’s a general rule of thumb: Once your barber, cabbie or shoe shine guy starts giving you hot stock tips, it usually means the market has hit a peak. That’s where we are now with cannabis investments.
There’s a natural allure to “up” markets, but the intoxicating effects of an industry boom or a roaring bull market are not related to an investor’s need to have money rationally invested and allocated according to specific goals.
Acreage Holdings raises a classic red flag: it has celebrities on its board who flap their gums on television a lot, but the firm is losing money. When the marijuana music stops, Acreage Holdings could be left without a seat.
Overall Acreage Holdings Forecast And Prediction For 2019
That was the bear case. Now for the bull case, which is far stronger.
Acreage Holdings is professionally managed with seasoned top executives, distinctions that elude many marijuana stocks. Billionaire super investor Warren Buffett counsels investors to seek out quality management; Acreage has it.
Take CEO Kevin Murphy, for example. Prior to his role at Acreage Holdings, Murphy was most recently a founding member and managing partner of Tandem Global Partners, an investment firm focused on emerging markets. Previously, Murphy was managing partner at Stanfield Capital Partners. Many marijuana firms are run by amateurs; you can’t use that label for Murphy.
In this video, Acreage CEO Murphy explains his long-term strategic vision for the company.
Meanwhile, marijuana legalization in the U.S. is gathering steam even at the federal level, providing impetus for companies such as Acreage.
In March, the U.S. House Financial Services Committee voted to pass legislation that would make it easier for marijuana businesses to access banking services. The bill will be considered by the entire House.
The proposed bill seeks to expedite the provision of financial services to cannabis companies by removing the fear of potential federal action against lenders. Many banks are reluctant to lend to marijuana businesses because of uncertainty over the industry’s legal status.
In April, Attorney General William Barr signaled at a Senate appropriations hearing that he is open to the approach outlined in legislation such as the STATES (Strengthening the Tenth Amendment Through Entrusting States) Act. Barr has circulated the legislation to the U.S. Department of Justice for review and comment.
The STATES Act, which was reintroduced this month in both chambers of Congress, would create an exemption in the federal Controlled Substances Act for state-legal marijuana programs.
“Personally, I would still favor one uniform federal rule against marijuana,” Barr said during the hearing. “But if there’s not sufficient consensus to obtain that, then I think the way to go is to permit a more federal approach so states can make their own decisions within the framework of a federal law so we’re not just ignoring the enforcement of federal law.”
Coming from the conservative Barr, those statements about marijuana are encouraging. He has opened the door to federal legalization. Boehner adds further legitimacy.
Do these political trends and celebrities help Acreage? Sure. But here’s where the rubber meets the road: the company has fast-growing revenue, another quality lacking in many marijuana companies that are more hope than opportunity.
Acreage Holdings in March reported fourth-quarter revenue of $10.5 million and full-year 2018 revenue of $21.1 million, up 380% and 173%, respectively, compared to the same year-ago periods. Revenue growth was propelled by new store openings and acquisitions.
Admittedly, Acreage reported a fourth-quarter net loss of $217.6 million and a 2018 net loss of $219.7 million. But this company is plowing its growing revenue into future growth.
For fiscal 2018, Acreage spent over $200 million on various strategic transactions and invested $37 million to expand its operations.
During the fourth quarter of 2018, Acreage opened two dispensaries under its The Botanist brand in Buffalo, NY and Worcester, MA. Acreage also bought one dispensary in Thames Valley, CT.
In November 2018, Acreage Holdings acquired the real estate assets of Michigan-based Blue Tire Holdings. The Acreage/Blue Tire venture is launching dispensary operations with municipal licenses in key cities throughout Michigan, a state where marijuana demand is strong.
Acreage and Blue Tire have obtained real estate assets in strategic urban locations, including a 55,000-square-foot facility in Flint to cultivate cannabis, provide manufacturing and packaging services, and serve as a retail location.
On April 16, Acreage Holdings announced the closing of its acquisition of Form Factory, in an all-stock transaction valued at $160 million. Form Factory is a leading commercial manufacturer of cannabis infused edibles and beverages; acquiring the company helps facilitate Acreage’s ambition to become the first integrated, national cannabis consumer packaged goods company.
What Hershey (NYSE: HSY) is to chocolate, Acreage wants to become for marijuana.
Acreage’s forward price-to-earnings (FPE) ratio is 45.9, high compared to many of its peers and the FPE of 17.5 for the S&P 500. However, the average analyst expectation is for Acreage to rack up year-over-year earnings growth next year of a whopping 518.2%.
The legalization and subsequent commercialization of marijuana is an unstoppable trend and a once-in-a-generation chance to get onto the ground floor of an industry that’s becoming a juggernaut. If you’re selective and conduct due diligence, the right pot stock could turbocharge your portfolio.
Acreage’s Board of Directors underscores a truism of life: politicians are adept at following the money. When the dust settles in the cannabis industry, Acreage is poised to be among the winners. A merger deal with marijuana giant Canopy Growth probably would be a bonanza for Acreage investors, as the combined entity fosters vertical integration and economies of scale.
John Persinos is the managing editor of Investing Daily.