Over the past year, investors have gotten an opportunity to invest in cannabis stocks on U.S. exchanges – and yes, there has been lots of exuberance. Yet the companies — like Canopy Growth (NYSE:CGC), Tilray (NASDAQ:TLRY) and Cronos Group (NASDAQ:CRON) — have all been Canadian-based because of legal issues.
But things will change soon. Yes, this Thursday we’ll see the launch of the Greenlane IPO. This cannabis company is based in Boca Raton, Florida.
OK then, how is it able to deal with the legal restrictions? Well, the key is that Greenlane does not grow or sell cannabis. Rather, the company is focused on vaporization products and accessories for the industry. A big part of the distribution model involves a channel of more than 6,600 independent smoke shops and retail chains.
Greenlane also operates two highly popular web sites: VaporNation.com and VapeWorld.com. Last year, they averaged 292,000 unique monthly visitors and over 4,900 monthly transactions. All this is backed up with an extensive supply chain.
Note there are six distribution centers in the U.S. and Canada. And last year, they facilitated the shipment of more than 17.1 million product units.
No doubt, the company has an extensive inventory of products, with more than 5,000 SKUs. They range from pipes to grinders to cleaning products to rolling papers. What’s more, in light of the passage of the Agriculture Improvement Act of 2018, the firm has started to offer CBD products. This could provide a nice boost for the Greenlane IPO. The CBD market does look poised for strong growth, as Brightfield Group estimates the spending could hit $22 billion by 2022.
In terms of the brands, Greenlane carries premium vaporizers like Storz & Bickel’s Volcano, the PAX 3, Firefly and JUUL (which has the dominant marketshare in the U.S.). The company is also developing its own proprietary brands, which should allow for higher margins.
Growth and Risks of the Greenlane IPO
When it comes to the Greenlane IPO, the focus for investors will likely be on the growth of the top line. The good news is that the performance has been impressive. In 2018, revenues came to $178.9 million, up from $88.3 million in the prior year. The company is also EBITDA positive, at $4.1 million in 2018.
Now the Greenlane IPO does have some notable risks. First of all, there is heavy dependence on a handful of suppliers. For example, PAX Labs accounts for 15.6% of net sales and JUUL Labs is at 36.5%.
However, perhaps the biggest issue is the potential impact of regulations. According to the Greenlane IPO prospectus: “The FDA has recently expressed growing concern about the popularity among youth of the products of JUUL Labs and other manufactures of flavored ENDS products, and regulatory actions may impact our ability to sell these products in the United States or online.”
Bottom Line on Greenlane Stock
So what might we see from the Greenlane IPO? Well, of course, it’s pretty tough to predict what might happen. IPOs can be quite volatile, as we’ve seen with Lyft (NASDAQ:LYFT). Not long ago, that deal looked like a sure-fire winner.
But with the Greenlane IPO, the valuation is reasonable — at least by the standards of the cannabis industry. Based on the current pricing, the price-to-sales ratio is about 3.6, so it would not be a surprise to see a pop when the stock opens. Yet as with any IPO, it’s a good idea to not put too much of your money on any particularly deal, as the volatility can be stomach churning.
Regarding the Greenlane IPO, the company plans to issue 5.3 million shares at a range of $14 to $16 and the shares will list on the NASDAQ under the ticker of GNLN. The lead underwriters include Cowen and Canaccord Genuity.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.