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This Pot Stock Is up About 40% in Just the Past Month: Is it Time to Buy?

David Jagielski
Female scientist in a hemp field checking plants and flowers, alternative herbal medicine concept

Pot stocks have found some new life in recent weeks, as there’s been a lot more bullishness from investors surrounding the industry. Now that edibles are available, and a new segment of the market is open for business in Canada, there’s some renewed hope that cannabis stocks have reached a bottom and that it’s a safe time for investors to resume buying. However, even U.S. stocks have been rallying, as legalization efforts continue to make news and more states look to permit pot for recreational use.

One stock in particular that has taken off over the past few weeks is Vireo Health International (CNSX:VREO). It’s up around 40% in just the past month, even though the company didn’t release any exciting quarterly results to help generate a rally in the stock. Investors will recall that Vireo is the company that former Canopy Growth CEO Bruce Linton jumped ship to after being fired from the cannabis giant in July of last year.

Linton is currently an executive chairman with Vireo, and he’s optimistic about the company’s future. The company notes that after its pending acquisitions complete, it will have operations in 11 U.S. states, as it looks to be a key cannabis operator in the country. It also recently announced an exciting new brand of products that could help appeal to a niche market within the industry.

New LiteBud brand gives users the ability to get a mild high

Vireo announced in early January the launch of its patent-pending LiteBud brand, which promises to give users a more mild cannabis experience. With tetrahydrocannabinol potency levels sometimes above 25% in many of today’s recreational cannabis products, this new brand of products aims for a range between just 4% to 10%.

The company is hoping to bank off the popularity of the light beer market and try to mimic that success in cannabis. Currently, the LiteBud products are available at dispensaries in Maryland, but Vireo hopes to make the products available in other states it’s in sometime this year.

Is it too early to invest in the stock?

Vireo is still in its very early stages, as in its last quarter the company generated just US$8 million in sales and posted a loss of US$14.6 million. Over the past nine months, the company reported a US$20 million loss on revenue of US$21 million. During that time, Vireo also burned through US$16.4 million in cash from its day-to-day operating activities, which is about the same amount it had in cash on its books as of September 30, 2019.

The company has also scaled back its expansion, noting in its press release that as of the end of 2019, it had just 13 dispensaries operating, which was short of its initial goal of 16-20. The company noted that “market conditions have prompted us to delay the pace of certain development projects.”

However, Vireo is optimistic going forward, noting that one of its strengths is the flexibility that it has in its growth strategy. CEO Kyle Kingsley, M.D., stated the following:

“With virtually no debt, we control our own destiny and our lean operations and disciplined approach to capital allocation provide us a clear path to profitability. We have an extremely attractive collection of licenses and strategic assets with significant long-term potential, and we’re looking forward to better showcasing the strength of our portfolio next year.”

Bottom line

Vireo’s recent rally isn’t a result of anything substantive enough that warrants investors jumping on the bandwagon just yet. With many competitors in the U.S. market, and Vireo still only obtaining a fairly low market share thus far, it’s not a stock that investors should be rushing out to buy just yet, despite the stock’s impressive returns in 2020. While it’s worth keeping an eye on, Vireo isn’t a must-buy pot stock just yet.

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Fool contributor David Jagielski has no position in any of the stocks mentioned.

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