Cannabis stocks got off to a blazing-hot start to begin the year. During the first quarter, the Horizons Marijuana Life Sciences ETF, the very first cannabis exchange-traded fund, gained more than 50%, with over a dozen popular pot stocks rising in excess of 70%.
However, it’s been a different story since April began. Marijuana stocks have certainly lost their buzz over the past four months, with supply issues in Canada, tax problems in the U.S., and operating woes wreaking havoc on pot stocks throughout North America. Although the industry offers abundant long-term potential, it’s still in the maturation phase of its evolution.
With that being said, there are three marijuana stocks that I’d suggest investors avoid like the plague in the month of August…
Despite my being a shareholder of CannTrust Holdings (NYSE:CTST), it’s not a company I would consider putting another dime into until there’s better clarity on the company’s outlook following its admission of wrongdoing.
For those of you who may not have kept abreast with CannTrust, nearly a month ago the company announced that it had been growing cannabis in five unlicensed rooms between October 2018 and March 2019, with these rooms being subsequently licensed in April. Were this the end of it, it would have been an egregious error, but one that CannTrust had hopes of rebounding from.
However, it’s come to light via various reports that fake walls may have been used to obscure cannabis plants growing in these rooms in photographs sent to regulatory agency Health Canada. Additionally, emails appear to show that top executives at CannTrust were fully aware of the illegal grow at the company’s flagship Niagara campus in Pelham, Ontario, but allowed it to continue. This is what led CEO Peter Aceto to be terminated with cause by the CannTrust board.
In short, CannTrust’s future is very murky at the moment. It has supply deals in place with all of Canada’s provinces, which is something only three other pot stocks can say. Further, it could be a top-five grower in Canada, assuming it’s allowed to keep its cultivation licenses intact. The concern is, we simply don’t know what sort of punishment Health Canada is going to levy on CannTrust. With these questions left unanswered, it’d be best to keep your distance from this stock in the meantime.
Even though it’s one of the very few cannabis stocks that’s forecast to be profitable in 2019, hemp-derived cannabidiol producer and distributor CV Sciences(NASDAQOTH:CVSI) is a company I’d suggest you could do without in August.
On one hand, CV Sciences offers a compelling long-term investment case, with the farm bill legalizing industrial hemp production and hemp-derived CBD in the United States. CBD is the nonpsychoactive cannabinoid best known for its perceived medical benefits that, according to the Brightfield Group, could generate average annual sales growth in the U.S. of more than 100% over the next five years(including 2019). That would appear to make CV Sciences a stock to buy, not avoid.
But here’s the catch: Last week, Charlotte’s Web Holdings (NASDAQOTH:CWBHF)announced that it had signed its largest distribution deal ever with national grocer Kroger (NYSE:KR). Charlotte’s Web, the leading producer of hemp-derived CBD in the United States, will supply 1,350 Kroger family stores (about half of Kroger’s national locations) in 22 states with various CBD products. A day later, CV Sciences announced that it, too, would expand into 1,350 Kroger locations in 22 states. The thing is, CV Sciences was already in more than 900 Kroger locations, meaning it’ll now have to share shelf space with market-share leader Charlotte’s Web.
Making matters more precarious, the U.S. Food and Drug Administration has shown its hand on CBD, and it doesn’t look as promising as investors had hoped for. While CBD products still have a strong future in the U.S., the FDA is unlikely to give them a full-fledged green light anytime soon. That makes CV Sciences a stock to avoid in August…
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