James E Wagner Cultivation Corp (CVE:JWCA) (OTCMKTS:JWCAF) easily had among the most impactful bullish sessions in the Canadian cannabis sector today. The country’s first & only aeroponic cannabis LP ripped higher against the backdrop of yawning, moribund price action everywhere else. It appears the company’s unique cultivation process and relative valuation are starting to garner attention on the street.
On the day, James E Wagner finished higher by $0.17 to $0.92/share (↑22.67%). Today’s price action built upon a mini-rally started on June 29th, following the company’s Toronto Stock Exchange opening. After losing ↓31.96% of its value in a 4-day period which mirrored Canopy Growth’s recent swoon, James E Wagner punctuated today’s impressive bounce-back while recovering most of its losses in the process.
Moving to the charts, investors can hang their hat on a couple of items regarding the current setup. For starters, relative volume on both bear or bull impulses favors the latter. On a day where the Horizons Marijuana Life Sciences Index ETF (HMMJ) had its lowest volume trading session of the year—down ↓48.67% over the previous low on April 27—James E Wagner remained active. This happened without an overt catalyst driving the bid.
Secondly, strong on-close volume lead prices to an HOD finish—above areas which could be considered resistance. Although the stock is technically immature (having just listed), there’s no clear resistance in play inhibiting the stock from testing the $1.06-$1.07 area. The downside diagonal trendline drawn from the June 11 & 22nd highs have been pierced; as too the June 14 & 21st ‘channel’ lows (that term is used loosely in this instance). Technically, the stock looks to be in attack mode provided the stock maintains a closing low above $0.80 and volume remains brisk.
Given the pronounced buying spree taking place, investors might be asking why James E Wagner has been designated stock du jour. Good question. I can only speculate like everyone else. But in my humble opinion, it may be the confluence of positive press and relative valuation exerting its influence.
In terms of the former, Midas Letter highlighted the company’s unique value proposition back on June 20. The aeroponic cannabis LP has created a growing process which has several advantages over the competition as it relates to consistency of yields, pesticide avoidance and plant health. The latter characteristics could play well in the high-end medicinal and craft markets, where premium and organic strains are sought.
Furthermore, with a non-diluted market capitalization of only $65.69 million prior to July 4, the company’s valuation looks relative attractive on a peer-to-peer basis. Although James E Wagner only produces about 1,500kg/year of cannabis currently, they’re embarking on a $35-40 million, 345,000 sq. ft. expansion which will bring capacity to around 28,500kg/year before 2019 is through. If we compare this to the $150-$300 million market capitalization afforded several competitors with similar future yields (we won’t name names), the stock’s downside appears quite limited—irrespective of any potential bought deals in the pipeline.
Yes, there is some projection involved as full capacity won’t be attained for several quarters. But with a unique, higher-margin product, Canopy Rivers involvement and low relative peer valuations, investors may be in the process of closing the arbitrage between James E Wagner and its junior LP competitors.
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