Tuesday , 22 October 2019


Cannabis Central: Extraction Stocks Continued On Sale In September

This article reviews 4 of the larger, more established, cannabis stocks that are poised to capitalize on what could be the next big cannabis investing trend – extracted products.

By Lorimer Wilson, editor of munKNEE.com – A site for sore eyes and inquisitive minds!

At this early stage in the market’s development, most growers lack the experienced personnel and specialized knowledge to extract cannabis flower into oil, creating significant demand for third-party processing services. That’s where extraction companies come into the picture as they function as the middle-man of sorts in the cannabis supply chain, purchasing dried cannabis, extracting the oil-like substance containing THC or CBD from the plant, and selling it back to the same producers, or to other producers that have requested cannabis extract.

With more countries legalizing medical and/or recreational cannabis, the extraction of the plant’s oils to meet the demand for vapes, oils, tinctures, edibles, beverages, capsules, and shatter* are likely to outpace the sales of dried flower once these markets mature. (*Shatter is a type of butane hash oil (BHO) cannabis extract made from trichomes stripped away from cannabis flowers. It is named for its solid form because, when dropped, it breaks or “shatters” like glass.) Indeed, research in Canada has shown that flower sales slowed to an average growth rate of 8.0% in the 5 months following the legalization of medical cannabis in Canada back in October 2018 while oil sales grew at an average of more than 13.4% over that same 5 month period.

The 4 cannabis extraction stocks discussed here are:

  1. MediPharm Labs Corp. (TSXV:LABS; OTCMKTS:MLCPF)
    • MediPharm acts as a strategic partner to licensed producers (LPs) such as Canopy Growth Corporation, Emerald Health Therapeutics, The Supreme Cannabis Company, and others.
  2. Valens GroWorks Corp. (CSE:VGW; OTC:VGWCF)
    • Valens is focused on a specialized CO+ Ethanol extraction methodology, distillation, and cannabinoid isolation and purification and has signed multiple extraction agreements with major LPs such as Tilray,  Organigram, Canopy Growth Corporation and The Green Organic Dutchman.
  3. Neptune Wellness Solutions Inc. (TSXV:RTI; OTC:RDDTF)
    • Radient provides industrial-scale extraction using a patented method of extraction called Microwave Assisted Processing that they claim provides cleaner and higher yields than conventional methods.
  4. Neptune Wellness Solutions Inc. (NASDAQ:NEPT; TSX:NEPT)
    • Neptune is a wellness products company that specializes in the extraction, purification, and formulation of health and wellness products and counts Canopy Growth as one of its many customers.

As of the end of September the stock performance of the above 4 companies had declined 16.9%, on average, from the previous month (and -43.6% from its earlier peak) vs. the cannabis market in general which declined 18.6% (and -48.9% from its earlier peak):

  • MediPharm Labs was down 22%,
  • Valens GroWorks was down 18.3%,
  • Radient Technologies was down 9.9% and
  • Neptune Wellness was down 12.3%.

The above 4 cannabis extraction companies are just the largest ones in this sector. Others that you may be interested in are:

  • Halo Labs Inc. (OTCQX: AGEEF),
  • World Class Extractions Inc. (CSE: PUMP) and
  • NextLeaf Solutions Ltd. (CSE: OILS)

The above stocks were down 27.7%, on average, in September and are down 54.4% from their average peak prices this past spring.

Conclusion

In-house extraction operations will likely continue to fuel many vertically integrated cannabis companies BUT specialized cannabis extraction companies like the ones identified above should play a crucial role in the coming years as new marijuana markets continue to open around the world. They continue to be on sale so do additional homework to see if one of these stocks is right for you.

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