Isodiol International Inc (ISOLF)

[MarketProphet]

Now onto our next pick. The marijuana industry has been lightning hot upon expectations of favorable government rulings for recreational use and increased open-mindedness over cannabis-based medicinal uses. The issue with a lightning hot industry is that the major players in that industry tend to trade at quite aggressive valuations. There may be one exception to that.

Laguna Blends (LAGBF) has recently gone on an acquisition spree. It has changed its name to Isodiol International to reflect its largest acquisition. This stock is listed on the OTC and we rarely pick OTC stocks. But you really don't have much of a choice when it comes to weed companies. Isodiol trades frequently on the Canadian Stock Exchange under the symbol ISOL. So it's not quite like the typical OTC stock. LAGBF closed at 18.74 US cents on July 21 and ISOL at 23 CAD cents. With 173 million shares outstanding, Isodiol has a US market cap of $32 million and $40 million Canadian.

What makes ISOL/LAGBF stand out as an OTC company other than the fact that it is dual-listed is that it can claim that is is EBITDA positive:


While these numbers are unaudited, $12 million in revenue and $1.6 million in Adjusted EBITDA makes it sound like ISOL is a steal compared to its peers with a trailing revenue multiple of 2.7x.

Furthermore, the consolidated company "recorded sales of $1,843,173 CAD for the thirty-day period ended June 30, 2017. Total quarterly sales were $4,919,693 CAD for the period April 1st to June 30th, 2017" according to a press release on July 11. If sales are $5 million CAD per quarter, ISOL is trading at a 2x revenue multiple.

Contrast this to Canopy Growth Corporation (TWMJF) (WEED.to) which has a market cap of $1.37 CAD billion. Revenue was $14.7 million in its last reported quarter and $40 million for the year. Canopy's trailing revenue multiple is 34x while Q4 equates to a $60 million annualized run-rate or a revenue multiple of over 22x. Canopy is growing very quickly, but so ISOL so it's difficult to imagine that ISOL is over ten times undervalued compared to Canopy. Especially in light that the two companies have recently announced a distribution deal: