Canada Markets open in 1 hr 5 mins

Forget About Aurora Cannabis (TSX:ACB): I Prefer This Growth Stock

Christopher Liew, CFA
Female scientist in a hemp field checking plants and flowers, alternative herbal medicine concept

Interest in cannabis stocks hasn’t waned, although the intensity has diminished post-legalization. The largest cannabis producer, Aurora Cannabis, is extremely popular to investors. However, the industry giant, along with other major players, is showing stress.

Lesser-known stocks like Village Farms International (TSX:VFF)(NASDAQ:VFF) might be a better investment option if you want exposure in the promising cannabis industry. Although the company is more of an agricultural stock, operations are shifting to cannabis cultivation.

Experienced grower

Village Farms is one of the largest greenhouse operators in North America, boasting of 200 acres of production. In 2017, the company started venturing into the cannabis business. The management knows there is real opportunity in the cannabis sector.

As an experienced grower, the potential to generate significant cannabis sales and profits is there. The goal is to become one of the largest contract growers in the Canadian market. Currently, the company is licensed for 550,000 square feet of cannabis production. That is just half of the 1.1 million of the total planned area.

In the near term, Village Farms believe the cannabis market will transition into a contract grower model. A greenhouse operator can be a major supplier to the bigger cannabis companies, including Aurora Cannabis.

In addition, the predicted supply shortages in the next two quarters across Canada will work in favour of Village Farms. This scenario is ripe to capitalize and gain market share, as the company’s facility ramps up production.

Fast-rising weed stock

There is so much potential on the horizon for Village Farms in the domestic market. The stock is now under the radar of most investors.

From $4.78 at the start of this year, the stock is trading at $17.26 as of this writing. That is an incredible increase of 261%. Village Farms is outperforming even the best-performing weed stock. The upward momentum is expected to continue.

Analysts are setting high price targets for Village Farms in the coming months. The average or median price target is $30.61. But the high estimate is $44.52, which represents nearly 158%.

The $848 million company declared losses of $5.145 million in 2018, but it’s a drop in the bucket compared to the heavy losses by the bigger cannabis companies. For the current year, the growth estimate is 354.5% and seen to taper off to 178.60% in 2020.

Plenty of room for growth

Obviously, Village Farms is the odd man out in the cannabis sector. The company is well established in the farm business. But the move to cannabis cultivation is needed to turn things around. Selling cannabis is more profitable than selling cucumbers and tomatoes. The timing is perfect with plenty of room for growth.

The key is to execute well if the goal is to become a large cannabis supplier in the Canadian market. Village Farms could be the next fast-growing weed stock on the block. You might as well forget Aurora Cannabis in the meantime and invest in a less-risky growth stock.

More reading

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool owns shares of Village Farms International, Inc. Village Farms is a recommendation of Hidden Gems Canada.

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Motley Fool Canada 2019