The marijuana industry has been attracting significant investor attention lately as the push for federal-level legalization gains momentum and the stigma surrounding the use of pot declines. As of June 2021, recreational marijuana was legal in 19 states…
Despite overall optimism, pot legalization at the federal level still has few hurdles to cross. Last month, U.S. Senate Majority Leader Chuck Schumer released draft legislation of the Cannabis Administration and Opportunity Act, which would remove marijuana from the Controlled Substances Act. However, given that the bill does not yet have sufficient votes to push it through the Senate because some Republicans and moderate Democrats oppose the decriminalization of marijuana, the prospects of federal-level legalization look uncertain at best. Also, it is still unclear whether President Biden would sign the bill into law.
Amid this uncertainty, we think investors should avoid cannabis stocks with weak fundamentals and growth prospects. Canopy Growth Corporation (CGC – Get Rating), Aurora Cannabis Inc. (ACB – Get Rating), and Neptune Wellness Solutions Inc. (NEPT – Get Rating) are examples of cannabis concerns that are struggling to stay afloat due to their weak financials. Therefore, we believe these stocks are best avoided now.
Click here to check out our Cannabis Industry Report for 2021
Canopy Growth Corporation (CGC – Get Rating)
Headquartered in Smiths Falls, Canada, CGC produces and supplies hemp-based products and cannabis for medical and recreational purposes in the United States, Canada, and Germany. It sells softgel capsules, cannabis flowers, and oils and concentrates under Spectrum Therapeutics, First & Free, Tweed, Quatreau, and DNA Genetics CraftGrow brands.
In June, CGC completed the acquisition of all the common shares of The Supreme Cannabis Company. The company issued approximately 9,013,400 Canopy shares and made a cash payment of roughly $84,096.89. Although the acquisition could strengthen CGC’s position in the Canadian recreational market, it could negatively impact its cash balance.
CGC’s net revenue has increased 37.1% year-over-year to CAD546.65 million ($436.38 million) in its fiscal year ended March 31, 2021. However, the company’s loss from operations came in at CAD1.24 billion ($992.56 million), and its net loss amounted to CAD1.74 billion ($1.39 billion). Its comprehensive loss rose 82.7% year-over-year to CAD2.0 billion ($1.6 billion).
The stock has declined 23.7% year-to-date and 54.9% over the past six months. And it is currently trading 66.8% below its 52-week high of $56.50, indicating short-term bearishness.
CGC’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, which translates to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
CGC has a C grade for Growth, D for Stability, and an F for Value. Of the 220-stocks in the F-rated Medical – Pharmaceuticals industry, it is ranked #218.
In addition to the POWR Ratings grades we’ve just highlighted, one can see the CGC ratings for Stability, Momentum, and Sentiment.
Aurora Cannabis Inc. (ACB – Get Rating)
ACB is a Canada-based vertically integrated producer and distributor of medical cannabis products worldwide. The company is engaged in cannabis breeding, genetics research, retail distribution, and home cultivation of cannabis. In addition, ACB sells herb mills for using CanniMed herbal cannabis products, vaporizers, and cannabis oil and capsules.
In June, ACB completed the restructuring of its balance sheet. The repayment of its term loan resulted in interest and scheduled principal repayment reductions of roughly $25 million over the next year. The company also plans to issue up to…
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