Sometimes the best investing strategy is to start out by thinking small. Small-cap stocks often outperform the stocks of bigger companies in part because they can have more room to run.
Two of the most appealing small-cap marijuana stocks on the market right now are Origin House (NASDAQOTH: ORHOF) and OrganiGram Holdings (NASDAQOTH: OGRMF) . Origin House is the smaller of the two, with a market cap of around $375 million compared to OrganiGram's market cap of more than $600 million.
Origin House stock has also outperformed OrganiGram over the last year. But which of these two small marijuana stocks is the better pick now?
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The case for Origin House
One investment firm has called Origin House a potential "king maker." Why? The company is the top distributor of cannabis products in California. Origin House distributes more than 130 brands to over 70% of the cannabis dispensaries in the state.
It's a good thing to be No. 1 in the top marijuana market in the world. What's even better is that the California market is growing rapidly.
California's legal recreational marijuana market got off to a shaky start in 2018 due primarily to too much red tape and taxes that were too high. But things are getting better. Origin House expects the number of dispensaries to increase significantly. Arcview Market Research and BDS Analytics project that the California marijuana market will soar to $7.7 billion by 2022 from around $3 billion in 2017.
While Origin House should enjoy tremendous growth with its distribution business, the company is also expanding its own brand offerings. CEO Marc Lustig said in October that he expects Origin House will generate 50% of its revenue from its branded products by early 2019.
Although Origin House's primary focus is on California, the company is headquartered in Canada, and it isn't overlooking the opportunity in its home country. Origin House is acquiring 180 Smoke, a leading vape retailer in Canada, with plans to transition into the recreational marijuana market.
Origin House offers investors the opportunity to own a slice of multiple components of the cannabis supply chain. It also offers tremendous growth potential through its operations in California and Canada.
The case for OrganiGram
OrganiGram is on the cusp of making a lot of money. The company thinks that when it reports results for the quarter ending Nov. 30, 2018, revenue for the quarter will be greater than the revenue made throughout the entirety of fiscal year 2018.
There's no secret why OrganiGram's sales are skyrocketing . The company began selling products in the Canadian recreational marijuana market in October 2018. Unlike many cannabis producers, OrganiGram hit the ground running by supplying a full line of products including dried and milled flower, cannabis oil, and pre-rolls.
OrganiGram secured supply deals or listing agreements with customers in every Canadian province except Quebec. The company believes that its market share in New Brunswick , Nova Scotia, and Prince Edward Island is higher than that of all of its rivals.
There's another significant market in Canada that has yet to open. The country is expected to finalize regulations for cannabis edibles and concentrates later in 2019. OrganiGram should be ready to capitalize on the opportunity. The company recently announced a partnership with Canada's Smartest Kitchen, which specializes in food product development, to develop premium cannabis-infused chocolate products.
OrganiGram isn't just setting its sights on the domestic market, though. The company partnered with CannaTrek Medical to enter the Australian medical cannabis market. It teamed up with Alpha-Cannabis Pharma to go after the lucrative German medical cannabis opportunity. And OrganiGram invested in Eviana, which owns hemp operations in Serbia.
In addition to these deals, OrganiGram made another strategic investment in a partner, Hyasynth, that could pay off nicely. Hyasynth is developing cannabinoids that don't actually come from a cannabis plant. The small company's technology produces high-purity cannabinoids through genetically engineered strains of yeast. This process holds the potential to drastically reduce costs for cannabinoids used in beverages, edibles, and other products.
Better marijuana stock
I like both Origin House and OrganiGram. Actually, I recently picked them as two of my top three Canadian marijuana stocks to buy in 2019 . But if I could only go with one of these stocks, it would be Origin House.
Origin House includes a line in its presentation to investors: "Win California, win the world." That might be an exaggeration, but there's some truth in the statement. A company that can succeed in the huge California market will be successful. Period. Origin House is already succeeding as a distributor in the state and is rapidly building its own portfolio of cannabis brands.
In my view, Origin House's California focus gives it an edge over OrganiGram. And while I'd argue that OrganiGram is more attractively valued than most Canadian cannabis producers, my take is that Origin House is an even better bargain considering its growth prospects.
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Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends OrganiGram Holdings and Origin House. The Motley Fool has a disclosure policy .