In the 1850 gold rush, millions of Americans headed west to get rich digging for gold. Very few of them ended up making any money. But for the stores that were selling picks and shovels, well that’s a different story. They made a fortune.
This is the genesis of what Wall Street calls the pick-and-shovel play.
A pick-and-shovel play is an investment in a company that sells supplies or materials to an entire industry or even multiple industries.
There are two benefits to a pick-and-shovel play:
- The play gains broad exposure to an entire industry.
- A play like this avoids having to pick winners and losers within the industry.
Pick-and-Shovel Cannabis Play
I see an exciting pick-and-shovel play in the cannabis industry. This industry leader sells high-tech growing systems to some of the largest growers in the country.
- just began trading shares on the NASDAQ.
- posted revenue growth of more than 100% in 2020.
- has a stock price trading at a discount compared to peers in the cannabis sector.
Agrify Corporation (NASDAQ: AGFY) is a pick-and-shovel play on the U.S. cannabis industry. Headquartered in Burlington, Mass, Agrify sells high-tech, indoor growing systems to some of the largest cannabis companies in the country.
Here is an image of one of its most popular products – stackable grow units.
Image from Agrify’s website.
Agrify’s competitive advantage is that it grows cannabis and operates more efficiently by using high-tech grow units with integrated software.
With Agrify, cannabis companies can:
- increase yields
- optimize grow space
- increase efficiency
These benefits are driving impressive growth. Agrify has been cashing in on the high-growth, U.S. cannabis industry.
Sales have exploded higher in the last 12 months. In the first nine months of 2020 sales came in at $7.7 million, up more than 200% from the same period in 2019. Take a look at the income statement from the company’s IPO filing.
Looking forward, I expect more big-time sales growth because of a powerful catalyst.
Agrify shares just began trading on the U.S.-based NASDAQ stock exchange under the ticker symbol AGFY.
This is important for two reasons:
- The company received a $75 million capital injection that it will use to fund more growth.
- Regular investors can now invest in this company.
Going public is a huge win for Agrify. The company just stuffed $75 million into its bank account, which they will use to develop more products. With the U.S. cannabis industry still in the early stages of growth, Agrify is in a position to see major expansion in the next five years.
Shares Have Been Volatile Since Going Public
Agrify has been volatile since going public. Shares have been trading in a pretty wide range between $10 $20. Looking forward, I believe we’ll see shares stabilize and begin a steady trend higher. Take a look at the 4-week chart below.
The Big Picture on the Pick-and-Shovel Play with Agrify
A pick-and-shovel play is an effective way to make a broad investment in an entire sector.
Agrify is a pick-and-shovel play on the U.S. cannabis industry. Not only is the company is an early industry leader with impressive sales growth, but shares just went public on the U.S.-based NASDAQ exchange.
About the Author & Cannabis Stock Trades
Michael Vodicka is an equity analyst with more than 20 years of experience trading and investing. His research has been featured in some of the industry’s most respected publications. He has been investing and leading investors in the cannabis sector since 2013.