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Finance

A Micro-Cap Cannabis Stock to Put on Your Watchlist

Indus Holdings (OTC:INDXF) is a vertically-integrated cannabis company with advanced production capabilities, including cultivation, extraction, manufacturing, brand sales & marketing, and distribution. Founded in 2014 and based in Salinas, California, Indus offers services supporting every step of the supply chain and an extensive portfolio of award-winning brands, including Cypress Cannabis, House Weed, The Original Pot Co, Moon, Acme, and Kaizen Medicinals. 

Indus Distribution, a division of Indus Holdings, Inc, is a leading distributor of cannabis products, servicing an extensive portfolio of brands and licensed retailers. Currently, George Allen assumed the chairman role and implemented a new mission which was to focus solely on California, along with unlocking profitability from core operations, consolidating supply-side capacity, and utilizing economy of scale advantages to win market share with value leadership made possible by their scale and vertical integration.

Allen has chosen to focus on California because as of January 2021, the state’s three licensing authorities have issued about 10,000 commercial cannabis licenses to cannabis businesses throughout California. There are 9,721 active licenses, including 6,258 cultivators, 891 manufactures and 723 retailers, 320 delivery services, 1024 distributors, 281 microbusinesses, 150 transporters, 38 event organizers, and 36 testing laboratories. California is currently the largest cannabis market in the United States with over 25% of the U.S. legal sales taking place there. The market is extremely fragmented with average players being very small with much higher cost structures. There are currently 2,900 growers with an average canopy space of 15,000 sqft. One important data point to note is that California was not over-invested in the top of the cycle. The black market, while still a factor, is ineffective at competing for the Californian consumer which creates a much more favorable environment for legal cannabis producers.

Long story short, California is the long-term home of cannabis cultivation in America and possibly the world. 

Indus has 225,000 sq. ft. of light deprivation greenhouses with supplemental lighting. Their distribution network reaches over 600 dispensaries with manufacturing capabilities across all form factors. The company is vertically integrated with a single California location for the best growing format which creates a fantastic combination of quality and cost. Indus has a captive infrastructure that is necessary to push and promote any brand statewide. They have the ability to not be tied to the success of any single category or product which offers diversity. Customers buy value and vertical integration which allows Indus to deliver products at the best possible price with less operational friction and managerial oversight.

Indus has a diverse revenue model. With over 100 million in revenue capacity coming from multiple segments in the cannabis sector, Indus has strong potential to generate revenues in California.

The stock has had quite a year.  It’s currently up 233% and has a market cap of about $52 million.

The company will be releasing its 4th Quarter and fiscal year 2020 financial and operational results next week. When this takes place Indus will be giving insight into what the company has planned for the year ahead. Investors should be keeping a close eye on revenues along with how close the company is to profitability. Investors should also focus on market share in California and what kind of figures the company is projecting for the remainder of 2021. 

Currently INDXF is covered by only 1 analyst who has a Buy rating on the stock, with a price target of C$2.75 (which equates to about US$2.19).  At current prices, this represents roughly 44% upside for investors. 

California is one of the most lucrative cannabis markets in the world and still presents a solid opportunity for growth, especially for a company like INDXF. So make sure you keep Indus Holdings on your cannabis watchlist.

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INDXF shares were trading at $1.55 per share on Wednesday afternoon, up $0.02 (+1.31%). Year-to-date, INDXF has gained 35.96%, versus a 4.48% rise in the benchmark S&P 500 index during the same period.

About the Author: Aaron Missere

Aaron is an experienced investor who is also the CEO of Departures Capital. His primary focus is on the cannabis industry. He also hosts a weekly show on YouTube about marijuana stocks. Learn more about Aaron’s background, along with links to his most recent articles. More…

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