Acology Inc (OTCMKTS:ACOL) Looks Set For A Strong Close To The Quarter

Acology Inc (OTCMKTS:ACOL) is one of those companies that drew a considerable amount of attention at the end of last year on the back of the recreational cannabis legalization ballots. It's also one of those companies that seems to rely on a relatively tenuous link to the space, but has nonetheless managed to hold on to a large portion of its hype-driven run.Over the last month or so, however, Acology has struggled a bit. The company dipped immediately following an end January run, and has lost around 60% of its valuation. For company of this size, a swing like that isn’t necessarily indicative of underlying weakness, of course. We may just be seeing a correction on the run.A few recent releases have pointed towards some potential near term strength, and we think that current levels could serve as a floor, and a pivot point from which Acology could revalue. Here's what the company has just reported, and what we're looking for as supportive of our bias.As a quick intro, this one is a medical packaging company. Its lead product is a drug container called MedTainer, and Acology has sort of stumbled across a win in the cannabis space with the product. Why? Partly because it's designed as a secure medical container, and as such, will keep cannabis leaf fresh and relatively odorless (from the outside), but mainly, because it's designed to be part container-part grinding tool. Acology wanted to create a product that people who cannot swallow large pills could use to grind down their medication before administration. The product it designed was MedTainer. As it turns out, of course, the ability to grind up cannabis is a huge part of recreational and medicinal plant consumption. This gives Acology a great market opportunity – to offer cannabis consumers a packaging system that not only secures their product and keeps it fresh, but that is also functional in that it can grind their plant ahead of consumption preparation.Management looks to have both recognized this potential, and be capitalizing on it.As per the most recent raft of company releases, Acology has seen a growth surge in sales of its MedTainer product. The company expects product-sales growth to escalate from its current level to as much as 300% in the next 3 to 5 years, and that a huge portion of this will come from growth in the hydroponic space. In a February 27 business update, management put forward what it calls conservative estimates that hydroponic products alone could potentially add $5M net to Acology’s bottom line the next 2 years.Coming back to the present, and as per this early February release, the company is on track for a 33% income gain during the first quarter of this year when compared to the first quarter of last, and that MedTainer sales will rise 25% across the same two periods.In other words, whether the company has stumbled across this market or not (there's an argument that management foresaw the recreational market as being a large target for Acology when it was developing the product), it's taking advantage of it.A recent expansion announcement consolidates our suggestion that management is pouncing on its opportunity, and should drive sales further once complete.What we've got here, then, is a company that is small, but growing fast, and importantly, is increasing both top and bottom line based on the growth. At this end of the market, that's not often seen.There are risks associated with an exposure, of course. Whatever the growth stats, cash is not strong (just $4K at last count) and the potential for dilution hangs heavy over the stock. Weighed against the potential near term upside, however, as the company heads towards filing record numbers with the SEC, we think the reward side of the equation has the edge.We will be updating our subscribers as soon as we know more. For the latest updates on ACOL, sign up below!Disclosure: We have no position in ACOL and have not been compensated for this article.