Investors may not see as much green with these pot stocks as once expected.
We’re now less than three months away from the official kick-off of legal cannabis in Canada. With the passage of the Cannabis Act one month ago, Canada is set to become the first industrialized country in the world, and second overall behind Uruguay, to allow adults to purchase cannabis legally.
As you might have rightly imagined, demand for legal weed is expected to be incredibly strong out of the gate. While estimates tend to vary, giving the green light to recreational marijuana is expected to add in the neighborhood of $5 billion in annual sales to the Canadian pot industry. This comes atop what it’s already generating from medical marijuana sales and via exports.
Profit estimates for these brand-name pot stocks are tumbling
In anticipation of this spike in sales, investors have pushed marijuana stock valuations through the roof. Of course, it’s not hard to understand why when we could be looking at triple-digit sales growth in each of the next two to three years for most pot stocks.
However, there comes a time when speculation ends and investors want to see tangible bottom-line results. Though a number of marijuana stocks are expected to turn a profit by fiscal 2019 or 2020 (depending on the start of their calendar year), three big-name pot stocks have recently (within the past 90 days) had their profit projections slashed by Wall Street…
Canopy Growth Corporation
The largest marijuana stock in the world by market cap is one glaring example of a company that isn’t exactly in Wall Street’s good graces when it comes to profitability.
Roughly three months ago, analysts expected Canopy Growth Corporation (NYSE:CGC) to generate CA$0.63 per share in full-year profits by fiscal 2020. But the current full-year estimate, as of July 15, was down to CA$0.40 per share. In fact, the six estimates available for fiscal 2020 range from a profit of CA$0.95 to a loss of $CA0.16 per share — an exceptionally wide range suggestive of how many unknowns are associated with legalizing adult-use cannabis.
So, why the falling profit projections? My suspicion is that it’s a combination of three factors…
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