The vaping crisis has taken a big bite out of cannabis stocks.
Since the story went viral in early August, the Alternative Harvest ETF (MJ) has fallen 30%.
That big drop happened because investors started pricing in a worst-case scenario for vaping and the cannabis industry – that vaping was going to be banned in the US. That might sound extreme but there were some big knee-jerk reactions from public health officials.
For example, Massachusetts banned all vaping products for four months.
However, new information shows the vaping news is not a threat to vaping or the cannabis industry.
After studying sick vaping patients, doctors found that people getting sick from vaping were buying THC products on the black market that were tainted with toxins, including deadly cyanide.
That means the long-standing conclusion still stands: vaping is still way safer than smoking.
This is very good news for the US cannabis industry. It doesn’t look like the vaping crisis is going to have any long-term impact on the industry.
However, it doesn’t look like Wall Street and Main Street have gotten the memo just yet.
Many US cannabis stocks have not rebounded off the news and are still trading near multi-year lows.
This divergence pattern is creating a great opportunity.
Today, I am going to reveal one of the most undervalued cannabis stocks in the entire sector.
Shares of this US cannabis industry leader fell sharply on the vape news, recently hitting a multi-year low.
In the meantime, the company has been delivering huge revenue growth, recently hitting another fresh all-time high.
Kushco Holdings (KSHB) is an early industry leader in the US cannabis industry. Kushco specializes in selling cannabis accessories online.
Kush Supply Co. sells a huge selection of cannabis supplies online, all the way from packaging materials to vapes and vaping supplies.
Kush bottles have been one of the fastest-growing companies in the cannabis industry.
Third-quarter revenue increased 221% from the year before to $41.5 million.
Despite the impressive sales growth, Kush took a beating on the vapes news. With vapes and vape accessories accounting for a large percentage of company revenue, investors became nervous that sales would plummet on the vape news.
That’s why shares fell 65% in August and September. Take a look at the decline below.
That reaction has transformed Kush into possibly the most undervalued stocks in the entire cannabis industry.
Kush has a current market value of $145 million. Kush recently projected 2019 annual sales between $145 and $150 million.
That gives Kush a price-to-sales ratio of just one. That is a huge discount to historical levels and industry averages.
For example, Canopy Growth Corp (WEED, CGC) has a P/S ratio of 34.
Cresco Labs (CL, CRLBF) has a P/S ratio of 11.
I like Canopy and Cresco a lot – but for investors looking for value in the cannabis sector, Kush has both of them beat.
What Should We Expect Moving Forward?
After the recent decline, Kush looks extremely oversold on the chart.
Looking forward, I expect shares to stabilize and rebound.
Michael Vodicka owns shares of Canopy Growth Corp (CGC, WEED) and Cresco Labs (CRLBF).
About the Author
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.