Auxly Cannabis Vs Village Farms Stock: Medical marijuana is more widely available than ever, and the legalization of recreational marijuana is gaining traction across the US. As of June 2019, 33 states have dropped their bans on medical marijuana, and 11 states – plus Washington, DC – have ended the prohibition on recreational use of cannabis.
October 2018 brought full legalization of cannabis for all of Canada, and Mexico is taking steps towards similar legislation. While the US federal government isn’t showing any signs of removing marijuana from its list of controlled substances, it has agreed to end the prohibition against hemp. This opened the door for a range of cannabidiol (CBD) products, including everything from CBD-infused snacks to topical CBD skin creams and gels.
All in all, there is a huge market for all things cannabis, and that means there are profits to be made. Analysts have predicted that by 2030, the industry could generate anywhere from $50 billion to $200 billion in sales every year.
From growing and processing plants to operating dispensaries, cannabis-related businesses are thriving. For investors, it can be challenging to determine which area of the market to enter. Once that decision is made, choosing which company to buy stock in is complicated. Many businesses are trying to make their mark in this new industry, and it is hard to predict which ones are most likely to succeed. Let’s compare Auxly Cannabis Vs Village Farms Stock.
The Risks of Investing in Marijuana Stocks
Any investment carries risk, but investments in the cannabis industry are riskier than most. The biggest issue is the on-going state of legal flux. Many nations are on the path to legalization of marijuana, so businesses operating on a global scale are in a better position to profit than their domestic peers.
Companies that want to tap into the US market have room to operate in a number of states, but there is always a possibility that enforcement of the federal prohibition will become an issue. Because of this, it is difficult for companies dealing in marijuana and cannabis products to obtain financing from traditional lenders, and most of these businesses must rely on alternative financial solutions.
Another frequently-mentioned risk is the intense competition in the cannabis industry. The current revenue explosion and the industry’s projected future growth has encouraged all sorts of entrepreneurs to launch startups – no matter how precarious their financial position. Companies are entering and exiting the market so quickly, it is hard for investors to keep track. As a result, comparing stocks for potential purchase is unusually complex.
The Basics of Auxly Cannabis
The founders of Auxly Cannabis saw the potential for cannabis sales in 2017, and they launched their Canadian-based company with an ambitious goal: to become a global cannabis leader.
In the two years that followed, they have grown the business significantly, taking on major partners, participating in joint ventures, and operating subsidiaries in nearly every area of growing, processing, and selling cannabis.
Auxly has massive production capabilities, and the company’s level of vertical diversification is virtually unmatched.
Through its subsidiary Dosecann, Auxly is well-prepared for the next stage of cannabis sales in Canada: products containing cannabis derivatives. Dosecann operates a facility capable of extracting cannabis derivatives that will be used in a variety of ways.
Examples include chocolates, oils, capsules, and vapes. Auxly’s partnership with Spiritleaf, a chain of retail stores, will ensure Auxly products get to consumers.
Auxly’s control of the end-to-end cannabis production and sales process recently attracted the attention a new partners. In July, tobacco maker Imperial Brands announced a partnership with Auxly that promises to bring benefits for both companies.
The downside, from an investor’s perspective, is that so far Auxly hasn’t been profitable. That’s not unusual for such a new company, but it does give investors reason to pause. For the second quarter of 2019, Auxly reported just over $2 million in sales, which represented a large increase from the previous quarter. However, Auxly ultimately did not profit, coming in with a net loss of approximately $10.6 million for the quarter.
The good news is that Auxly has a plan – and low revenues in the first part of the year are part of it. Auxly is holding back a large portion of its dried marijuana flower stock for use in the derivative products that will come to market later this year. Most competitors were not as strategic, which may give Auxly a leg up in breaking to the derivatives market.
All in all, most analysts consider Auxly a buy. Though it is not currently profitable, there is plenty of room for growth. Auxly is well-positioned to take advantage of the industry’s coming opportunities.
An Overview of Village Farms
Village Farms didn’t start out as a cannabis company. Until recently, Village Farms’ primary focus was on tomatoes, cucumbers, and bell peppers, and the company was best known as one of the largest hydroponic producers of these popular veggies in North America.
As it turns out, the high-tech growing experience Village Farms gained over the past 30 years put the company in a perfect position to profit from the rise of cannabis.
Village Farms’ subsidiary Pure Sunfarms is currently able to produce more than 160,000 pounds of cannabis every year, and it expects to double capacity within the next 12 – 18 months.
On top of that, Village Farms is tapping into the US hemp market. There are already facilities in operation, and expansion plans are well underway – without the need for diluting shares to raise more capital. This is made possible by the fact that Village Farms is already profitable, thanks to its vegetable business.
In fact, Village Farms reported net income of $9.9 million for the second quarter of 2019. The vegetable division is likely to stay steady, and in the meantime, cannabis sales will push company growth.
The main drawback to a Village Farms investment is its lack of international presence. Eventually, North American cannabis supply and demand will balance out, leaving Village Farms without any room for additional growth. If the company chooses not to explore global markets, there may be a ceiling on the company’s future.
Auxly Cannabis vs. Village Farms Stock: The Bottom Line
The truth is that either of these companies can provide investors with exposure to the cannabis market. Which is best depends on individual financial goals.
Village Farms has demonstrated solid growth and profitability over the past year, and it is likely to move forward steadily. Profits probably won’t be extraordinary – but that goes hand in hand with a lower level of risk.
Auxly, on the other hand, is unproven – but it has an impressive foundation established to ensure future growth and profitability.
It has captured end-to-end cannabis production and distribution, and it is fully prepared for new opportunities in the industry. There is certainly quite a bit of risk with such a new company, but the rewards – if they come – could be much higher. Investors ready and willing to take a risk could consider Auxly a buy.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.