As Rich is quick to remind his RichTV Live community members, cannabis companies aren’t expected to make profits yet. The industry is so new that pot stocks rise on the potential for profit, not profit itself. Cannabis companies have to invest in infrastructure and build their businesses before revenue can exceed cost. This means that investments in the cannabis sector are, by nature, supposed to be long-term commitments.
Well, one company might have just turned that line of thinking on its head. On reports that its second-quarter for the fiscal year 2019 was not only strong, it was actually profitable, MediPharm Labs Corp. (TSX:LABS) (OTCQX:MEDIF) (FSE: MLZ) stock has risen significantly.
“MediPharm Labs … I would not be surprised to watch it explode tomorrow,” says Rich.
MediPharm Labs Can Benefit from Growing CBD/Hemp Trends
MediPharm focuses on specialized, research-driven cannabis extraction, distillation, purification, and cannabinoid isolation. The company prides itself on delivering pure, safe, and precisely-dosed cannabis concentrates and advanced derivative products.
Its position as a high-quality extractor means that MediPharm stands to benefit from the booming CBD market, which is expected to be worth between $16 billion and $17 billion by 2026. Likewise, as hemp becomes a more valuable crop, extraction services will be in greater and greater demand.
This is already proving true, as the company’s Q2 results show. MediPharm Labs announced a 43 percent increase in revenue and a 65 percent increase in gross profit from Q1. Adjusted EBITDA was $7.7 million, 79% higher than its previous quarter, and finally, the company’s net income for the quarter was $1.4 million.
“This is so big, these are some huge numbers,” says Rich.
Profit Might Be the Cannabis Sector’s “New Norm”
Standing beside MediPharm Labs in the green is Aphria Inc (TSX:APHA) (NYSE:APHA), which saw its stock price rise by 30 percent after announcing an unexpectedly profitable quarter. Rich also mentions that Aurora Cannabis Inc. (TSX:ACB) (NYSE:ACB) is expected to post profits in its upcoming quarterly announcement.
“This is the new norm in the cannabis sector,” he explains. “These companies are going to be making money. Now that they’ve seen Aphria reported profit, everyone’s going to report profit.”
This new trend may provide greater insight into the decision that led Canopy Growth Corporation (TSX:WEED) (NYSE:CGC) to oust founder Bruce Linton. Though Linton saw Canopy’s net revenue grow more than 300 percent year-over-year, the company still posted a $323.4 million net loss in Q4.
Rich speculates that now there won’t be as many excuses for cannabis companies to post losses. If Aphria and MediPharm Labs can turn a profit, investors will expect other cannabis companies to do so as well.
“You want to put your money in something that’s making money. We are now at the point in this exploding industry … where everybody’s going to start to show profit. They have to. It’s the way the game is played now.”
What do you think? Is this the turning point for the cannabis sector? Can this provide a unique buying opportunity for companies just beginning to post profits? Let us know in the comments below.
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