Village Farms International Breaks Out; Select Cannabis Juniors May Follow

Benjamin A. Smith
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Although Tier-1 Canadian licensed producers have been range bound over the past 3-4 weeks, not everyone has stood still. The weedstocks landscape is peppered with junior and mid-major that keep on running. Tonight, we highlight the sector’s ongoing and potential breakout performers in the space.

Village Farms International

The formerly sleepy LP known as Village Farms International has shape-shifted recently. Range bound for most of 2018, a robust news cycle has thrust this experienced agricultural grower into the limelight. Although the low-hanging fruit has been plucked during this ongoing breakout, who knows where lofty price targets and an impressive volume profile could take it.

VFF finished up another $1.43 (↑12.37%) after Beacon Securities raised their price target from $16 to $32/share. So far in 2019, Village Farms has soared an astounding ↑293.89% on the back of several positive catalysts, including NASDAQ up-listingPure Sunfarms OCS selection, and expansion of Pure Sunfarms’ licensed cannabis production area to 825,000 square feet.

Perhaps most importantly, shifting state and federal laws favoring hemp cultivation in Texas means Village Farms stands to benefit. There’s even speculation of a “wide open market for cannabis imports and exports” from Mexico within the NAFTA and beyond. The Company has marketing agreements with growers in Canada, the United States and Mexico that currently operate approximately 808,000 square meters of growing area. Historical peer valuations are still considered low compared to its peers.

So what comes next for Village Farms? That depends on your investment horizon. At this stage—with the stock almost tripling in seven weeks—extreme caution is advised. While multi-year horizon investors will be less inclined to look for exact entry points, those with little ability to accept a drawdown will need to be extra careful. There are literally no technical constraints up here in blue sky territory; anything from continued price melt-up to steep profit taking can occur at any point.

The next standout swing pivot on the hourly is the $10.22 area—or $2.72 away from today’s closing price—attesting to how short-term overbought the stock currently is. VFF has gone vertical over the past two sessions, despite upwards ho-hum sector action (slight upside bias). With volume surging to over twice the run-rate of previous record levels in January and September of 2018, there’s no indication the party has stopped just yet. Various oscillators and moving averages generally support continued upside momentum.

James E Wagner Cultivation

James E Wagner Cultivation has been on our radar for some time. It’s a company we’ve written about and interviewed frequently. Despite generally moribund price action since its TSX-V listing in June 2018, we’ve continued to stick with the story.

While it’s beyond the article’s purview to list why we’re believers in the company, it seems that James E Wagner’s time to shine may be fast approaching.

James E Wagner CEO Nathan Woodworth explains how JWC plans to license its GrowthSTORM technology to other companies in the cannabis space

After a rather uneventful news cycle to start the year, things are heating up. On February 12th, JWCA announced intentions to license its proprietary GrowthSTORM system to Wellness Farms. While it remains to be seen how much revenue is ultimately derived from this agreement (Wellness Farms is not yet a licensed producer), it was an important validation of its aeroponics technology. Additional licensing agreements are likely as 2019 rolls along.

Perhaps more important, JWCA is signaling a scaled-up production road map ahead. In the last couple of days, the company has secured loan agreements—without heavy warrant issuance—to purchase equipment and finance construction at its JWC2 facility. There’s also anticipation that Health Canada licensing at JWC2 is imminent, which would free-up the company’s scaling path. In anticipation of this event, James E Wagner is said to be “in discussions with a number of provincial retail distributors in order to prepare to be able to distribute our product from our new cultivation facility.”

With prices piercing a protracted consolidation pattern and yearly closing high of $0.84/share, there’s room for upside appreciation. Looks for minor resistance in the low $0.90 area, followed by psychological resistance at the $1.00/share mark near term.

Liberty Health Sciences

Liberty Health Sciences has had an impressive last couple of sessions. After original investor Aphria Inc. pulled the plug on its remaining 64.12 million shares held in escrow, LHS could have easily wilted (although we believed the event was actually good news for the company).

The subsequent price action over the following two sessions has confirmed this notion. After a brief dip following Wednesday night’s announcement, shares have been continuously bought. With today’s close at $1.17/share, LHS appears to be nearing an apex of a consolidatory rising wedge pattern replete with higher-lows on the daily.

Unlike its former seed investor, Liberty Health Science has not recovered from the Hindenburg Research short sell report, despite the fact HMMJ is ↑22.15% higher than before the issue date (December 3, 2018). LHS’s news cycle has been nothing but positive since, with three dispensaries opening up in Florida, GMP certification secured at a second cultivation facility, and impressive QoQ revenue and patient growth reported.

In light of this under-performance—as well as our inclination that LHS might be sought as an acquisition target in the high value state of Florida—I like the odds of LHS playing catch up here—provided sector conditions hold up. Prices are approaching an tipping point, wedged between firm support above $1.05 and yearly high. A daily close above $1.20 on higher than average daily volume could set this in motion towards the resistance zone between $1.40-1.60.

Benjamin A. Smith

Benjamin A. Smith

Ben is a research analyst and capital markets professional with nearly 20 years of experience. His areas of expertise are broad-based, and include extensive knowledge of macro economics, stock/derivative trading, commodity complexes, cryptocurrencies and technical/quant analysis. He also maintains an particular affinity for U.S. politics and the macro-regulatory environment facing...
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Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

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