As shown by the AdvisorShares Pure US Cannabis ETF‘s losses of more than 65% in the last 12 months alone, you can easily burn a fortune by investing it in a few of the most popular marijuana stocks. Between frequent mismatches of supply and…
demand and a stock market that’s positively sour on high-risk growth assets like cannabis stocks, now is the time when underperforming companies are getting shaken out.
Avoiding the industry’s falling stars is key to preserving your wealth if you decide to enter into the world of cannabis in the near future. Let’s look at a trio of cannabis businesses that are likely to demolish an investment of $5,000.
1. Aurora Cannabis
Down by more than 96% in the last three years, Aurora Cannabis (ACB -37.36%) remains a great option for investors who like losing money. While it has many issues, perhaps the most dangerous one for shareholders is its habitual overly optimistic communication style.
For example, Aurora claims to be the Canadian cannabis company with the highest adjusted gross margin, beating the likes of giants like Tilray Brands, (TLRY -2.62%) among others. But, when looking at the non-adjusted gross margins of its competitors, the story is entirely different.
Playing accounting games to make numbers look better is, unfortunately, a fact of life in the marijuana industry. And investors should probably avoid buying shares of the companies that paint a picture so distinct from the reality of their past performance. The same goes for overly rosy predictions about future performance.
Aurora’s management also holds that it’ll have positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by the first half of fiscal year 2023. But its most recent quarterly results show that its non-adjusted EBITDA is actually a loss to the tune of $761 million rather than earnings. Accounting adjustments aside, it’s very hard to see how a business with a market cap near $658 million and shrinking quarterly revenue compared to last year could ever grow its earnings by so much in such a short period. And that’s one more reason to avoid Aurora.
2. Sundial Growers
Sundial Growers (SNDL -2.14%) is another much-watched cannabis stock that’s liable to turn thousands into hundreds, though it’s significantly better off than Aurora because it doesn’t have any debt. Its trailing-12-month revenue grew by just over 5.9% in the last three years, reaching more than $50.7 million, which is quite slow for competing in a rapidly growing industry like cannabis. In the same period, its trailing-12-month gross profits declined by 100.6%.
The trouble with Sundial is that it doesn’t have a clear strategic focus. It sells cannabis products, but it also invests in marijuana companies and owns a major Canadian liquor store chain called Alcanna. Its cannabis retail footprint of 183 stores is the biggest in Canada, and its 171 liquor stores hold…
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