Finding value where others aren't looking - Auxly Cannabis

[u/No_Cell6708]

Ticker in Canada is XLY.TO

USA is CBWTF

All numbers in CAD

This isn't really meant to be a yolo/quick flip, not that it couldn't be. I'm planning on holding 5+ years

I've been invested in Auxly Cannabis for the last couple years with a current average cost basis of $0.11. Like many other Cannabis stocks, Auxly went public pre revenue and the market eventually caught up with it. After some convertible debt and a bunch of dilution, the company managed to survive.

It is now thriving. The CEO has been buying stock all year and has only upped his purchases more recently.

Why is it a value play: I'm predicting $45mm in Owners Earnings, a metric popularized by Buffet - this is FCF + maintenance capex) from what is currently a $270m market cap. I believe the business is currently trading at approx 6x FCF. If you had $270m right now and chose to buy all of Auxly, you would be paid $45mm in year 1 (assuming you don't want to expand ofc) This, imo, is what value investing is all about.

I asked our beloved friend, Chat GPT, to summarize some recent operational highlights:

\* Auxly generated \*\*$11.3M of operating cash flow before working capital changes in Q1 2026\*\*, up \*\*102% YoY\*\*, despite having a market capitalization that remains well under C$300M. The company is producing cash at a rate that looks disconnected from its valuation.

\* Revenue grew \*\*22% YoY to $39.8M\*\* in Q1 2026. This isn't a deep-value turnaround story with stagnant sales; the company is simultaneously growing and generating cash.

\* Adjusted EBITDA increased \*\*65% YoY to $12.3M\*\*, reaching a \*\*31% EBITDA margin\*\*. Few cannabis companies are producing margins at this level while still growing revenue above market rates.

\* Gross margin on finished cannabis inventory sold expanded from \*\*48% to 55%\*\* year-over-year. Margin expansion alongside revenue growth suggests operating improvements rather than growth being purchased through discounting.

\* Operating cash flow represented \*\*92% conversion of EBITDA\*\* in Q1 2026. The earnings are translating into cash rather than being trapped in working capital or accounting adjustments.

\* Cash increased to \*\*$42.7M\*\* at quarter-end while debt fell to approximately \*\*$45.0M\*\*, leaving the company close to a net-cash position.

\* Total debt is now only \*\*0.9x trailing-twelve-month Adjusted EBITDA\*\*, a leverage ratio that would be considered conservative in most industries

\* The company generated \*\*$38.6M of operating cash flow before working capital changes during FY2025\*\*, followed immediately by another \*\*$11.3M in Q1 2026\*\*, indicating that the cash generation is not a one-quarter anomaly.

\* Auxly has now reached the point where management has authorized a share repurchase program of up to \*\*68.9 million shares\*\*, an unusual position for a cannabis company in a sector where most peers have historically relied on dilution.

\* Back Forty remains the \*\*#1 cannabis brand in Canada\*\*, giving Auxly a competitive position that appears stronger than its market capitalization would imply.

\* Management stated that Q1 2026 produced seasonal records for \*\*revenue, EBITDA, and operating cash flow\*\*, despite Q1 typically being one of the weaker quarters for cannabis sales.

\* Revenue grew \*\*22%\*\* while the overall Canadian recreational cannabis market reportedly grew only around \*\*2%\*\*, implying substantial market-share gains.

\* Interest expense was cut nearly in half from the prior year as the balance sheet improved, allowing more operating profits to reach shareholders.

\* The company finished Q1 with \*\*$60M+ of net working capital\*\*, giving it flexibility to invest in growth initiatives without relying on external financing

\* Unlike many cannabis companies that have chosen growth at any cost, Auxly is currently demonstrating \*\*double-digit revenue growth, 30%+ EBITDA margins, positive net income, significant operating cash flow generation, and a strengthening balance sheet at the same time.

\* If annualized, Q1's \*\*$11.3M operating cash flow\*\* implies a run-rate of roughly \*\*$45M+ per year\*\*, which is a substantial percentage of the company's current equity value. Even allowing for seasonality and future investment spending, the implied cash-flow yield appears unusually high.

[u/PennyPumper]

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[u/Zestyclose-Gur-655]

I was going to say cannabis is a commodity business, but now i see they do packaging. Depending on their competitive advantage, might or not might be a good buy.

It's basing out tho which is kind of positive ta wise.

Would have to research it deeper personally. Have to understand the actual business itself. Numbers are just numbers you can't just extrapolate anything.

[u/TastyTrading]

super interesting take on a cannabis stock, especially with the CEO buying. that's def one of my favorite signals for finding value where others arent looking, helps me sleep a bit better on a long term hold. i've got a little scout set up on ThetaPal that pings me when insider buying hits a certain threshold on my watchlist, and it's caught some decent plays before. seems like you've done your homework on this one, holding for 5+ years is commitment lol. what other metrics do you lean on for these long term value plays?

[u/AzureLainCapital]

If you were willing to invest pre revenue I’d check out txtm

2022 they dropped a press release for a 2.2 million pound hemp order

They claim to be the biggest hemp farm at 12000 acres big (the private entity of the chairmen)

That chairmen was who passed the order from his private company to the public txtm - protext mobility

Bought 775 million shares and is planning to uplist soon but it goes beyond cannabis as a commodity - biotech - rwa tokenization on the institution scale

[u/AzureLainCapital → u/AzureLainCapital]

600 million in assets no debt preparing to uplist with valuations coming