Weed Inc (OTCMKTS:BUDZ) has been enjoying significant highs over the past few months.
The company which has seen its share price jump from $1 back in September to their current price of $6.66 has been basking in the glory of one of the highest increases in valuation within the industry.
View the price action in the chart below:
This 400% surge in price is expected to be driven by fundamentals. However, for this company, we propose a different theory. Our view is that the company has a very high sensitivity to the market and therefore, they are constantly beating the market at this moment when the market is going upwards. This is attributable to the rapid growth that has been seen within the marijuana space with the companies growing at astronomical annual compounded figures.
As such, we have opted to take a look at the company and assess how their past decisions may have influenced their valuation.
A Brief Look at BUDZ
Weed Inc was formed in 1999 as United Mines Inc and headquartered in Tucson, Arizona. Back then, they served as miners of precious metals within the United States.
However, in 2015, the company saw an opportunity that arose with the legalization of marijuana within the USA. As such, the company changed their name to Weed Inc and rebranded into a full-fledged cannabis player.
Since then, the company has had one vision: federal legalization of marijuana in the US.
They hold on to one motto, “All FIFTY STATES in FIFTY Months”, a motto which is based on the legalization of marijuana in all fifty states by 2020. Through this, the company can venture into all fifty states in the country thus reap the full benefits derived from the larger market size.
Finally, the company prides itself on being one of the pioneers of the industry, therefore, a driver in trying to eliminate the sale of illegal cannabis through the black market. They believe that through this, they have been able to ensure innocent people do not fall prey to persons whose only interest is the generation of higher returns without regard for the health of the end users.
The Developments That Were
Weed Inc made significant leaps during the 2018 period, some which were discussed in our last review of the company.
Readers can access this review here.
The period saw the company take up an expansionary strategy.
First, the company ventured globally into the Australian market through the setting up of Weed Australia Ltd, a subsidiary that would enable them to tap into the Australian space as well as begin their quest to venture out globally.
Then they acquired prime land in Laveta, Co through a $1 million investment.
The investment saw them gain a foothold in the Colorado market as well as begin their research in the Cannabis Genome Study. Through this, the company would utilize the over 10,000 square feet that the facility had and through its burfication grow the different divisions within it.
Throughout this period, the company kept enjoying a share price increase as their announcements were seen by shareholders and the market to be value adds. However, their share price did not rise as much as it has risen presently, a factor which has led to the question: what is the value-add that is driving the prices upwards?
The Recent Price Surge
In our view, Weed Inc, as well as many other cannabis players, have been benefiting mainly from their entry into the cannabis space.
One reason brought forth is that the company’s vision may soon be coming to fruition. Given that most states within the USA are currently in the process of legalizing the use of marijuana either for medical or recreational use (or both), Weed Inc is bound to benefit from the growth in this space. Furthermore, with the federal legalization of cannabis in Canada, the market remains hopeful that the participants within the space will benefit from a larger market, therefore, produce better financial performance over the coming periods.
Another is that most of these companies have a very high sensitivity to the market, therefore, upon the growth of the market, the companies keep on growing. Furthermore, with the constant growth seen in the cannabis sector, a sector which has been growing at a compounded rate of over 20%, strong players within it have limited options but to grow accordingly.
As such, the surge is driven by the expectations that cannabis will grow long into the future and given the valuation pegged to the cannabis space, it would be hard for any investor to have a bearish outlook towards any cannabis player going forward. As such, we remain bullish about BUDZ.
We will be updating our subscribers as soon as we know more. For the latest updates on BUDZ, sign up below!
Disclosure: We have no position in BUDZ and have not been compensated for this article.