Investors, meet Akerna (NASDAQ:KERN), the newest marijuana stock to hit the market. Akerna is fundamentally different from many other marijuana stocks in two important ways. One, it’s a U.S. company, whereas most pot stocks are Canadian ventures. Secondly, Akerna isn’t a cannabis producer; it’s a cannabis-technology company.
Given those novelties, investors have rushed into KERN stock to gain a different type of exposure to the continuous-growth cannabis market. That’s why KERN stock has essentially tripled over the past two days.
With that in mind, let’s now rewind a bit. The legal cannabis industry is poised to grow more quickly than most other markets over the next decade. Investors want exposure to that market. Right now, because we are in the top of the first inning of the cannabis sector’s growth, investors’ potential exposure to the legal cannabis industry is largely limited to Canadian cannabis producers like Canopy Growth (NYSE:CGC), Cronos (NASDAQ:CRON), Aurora (NYSE:ACB), and Tilray (NASDAQ:TLRY). Simply put, the biggest players in the cannabis space are producers, and pot still isn’t legal in all of the U.S.
Against that backdrop, Akerna’s plunge into the public market is very interesting. A U.S.-based, cannabis technology company, KERN is the first of its kind to go public. And, because investors desperately want diverse exposure to the cannabis market, KERN stock has been a home-run hit ever since making its Wall Street debut.
How did Akerna make it to the public market? Will the hype of KERN stock continue? Most importantly, is Akerna stock worth buying today? Let’s answer those questions and more by taking a deep look at KERN stock.
What Does Akerna Do?
Akerna is a very interesting company that uses big data and technology to develop products for cannabis producers.
At present, Akerna is supported by two major businesses. One of those businesses is seed-to-sale technology, which allows regulators and government agencies to track cannabis products from their cultivation to their final sale. This is a very important technology. In fact, it’s necessary. Seed-to-sale tracking is required by states such as Washington and California and will likely be mandatory for the global cannabis industry.
KERN’s other meaningful business is broadly dubbed enterprise resource planning, which essentially involves selling big-data-focused software to cannabis producers and pot-store operators. The software is supposed to help players in the cannabis industry better understand their market and customers, as well as reduce expenses, maximize profit, improve customer relationships, and increase yield.
Overall, then, Akerna is a cannabis-tech company which sells important technology solutions to cannabis industry regulators, cannabis producers, and retail cannabis companies. KERN hopes to become the technology backbone of the entire cannabis industry.
It’s already well on its way to that goal. Akerna’s systems are used in 29 of the 33 U.S. states in which cannabis is legal.
How Did Akerna Get Here?
As mentioned earlier, KERN stock is the first of its kind to go public. Not only is KERN a cannabis-tech company, but it’s a U.S.-based cannabis-tech company.
KERN stock plunged into the public market through a smart merger and some savvy legal maneuvers.
The core of Akerna is MJ Freeway, which is a U.S. technology company that provides the cannabis software solutions described earlier. Importantly, MJ Freeway isn’t a cannabis company. It’s a cannabis technology company. Because MJ Freeway doesn’t deal directly with marijuana, it was able to sidestep the legality question and go public with less complications than cannabis producers.
Further, MJ Freeway skipped the whole lengthy IPO process. Instead, MJ Freeway merged with a special purpose acquisition company (dubbed SPAC in Wall Street lingo) that was already public. That SPAC was MTech Acquisition. Thus, through MJ Freeway’s merger with MTech Acquisition, the IPO cleared all the legal hurdles, and the combined entity was dubbed Akerna.
That happened on June 17. Ever since, KERN stock has essentially tripled.
Where Is Akerna Going Next?
KERN stock has been a huge hit on Wall Street, mostly because the stock offers investors unique exposure to a non-cyclical growth market, and is supported by a speculative but enticing long-term growth narrative which, in a best case scenario, ends with Akerna being the technology behemoth underlying the $200 billion-plus global cannabis industry.
Does that mean it’s time to buy KERN stock?
No. KERN stock has a lot of potential. But all that potential isn’t very certain to materialize and it lacks tangibility. The company reported just $10 million of revenue last year. That’s next-to-nothing. To bridge the gap between that $10 million 2018 revenue base and a potential billion dollar revenue base in a decade, a lot needs to happen.
At this point in time, that growth isn’t visible. It’s simply too early to declare Akerna stock a long-term winner in the cannabis-tech space.
Over the next several months, KERN will be given the opportunity to more convincingly prove its leadership position and cement itself as a long-term cannabis-tech winner, much like Canopy Growth did in 2018 in cannabis production. If that happens, KERN stock will become worth buying. But, until then, the sidelines are the safest and smartest place to hang out when it comes to Akerna stock.
The Bottom Line on KERN Stock
KERN is exciting because, as a U.S.-based cannabis-tech stock, it’s the first of its kind. This novelty is what has propelled KERN stock to a 200% gain in just a few trading days.
The long-term bull thesis on KERN stock is promising. But it also lacks visibility and tangibility, meaning that it’s still too early to tell whether or not Akerna will turn into a cannabis-tech giant or a bust. As a result, until KERN’s outlook becomes more visible and tangible, KERN stock should be avoided.
As of this writing, Luke Lango was long CGC and ACB.