Although it’s had its ups and downs, cannabis is forecast to be one of the fastest-growing industries over the next five years. According to cannabis-focused analytics company BDSA, global marijuana sales are projected to hit $62.1 billion by 2026, representing a doubling from the estimated…
$31 billion believed to have been sold globally in 2021.
However, not all marijuana stocks are going to be winners. While the industry is full of promising growth stocks, some of which are already achieving recurring profitability, the following four pot stocks, all of which have a Canadian focus, should be avoided like the plague in 2022.
Aurora Cannabis
The award for the most times a pot stock has appeared on a “stocks to avoid list” unquestionably goes to Canadian licensed producer Aurora Cannabis (NASDAQ:ACB).
Once upon a time, Aurora was the premier name among Canadian weed stocks. It had 15 production facilities globally and looked to be on pace for well over 600,000 annual kilos of cannabis output when fully operational. However, Aurora’s previous management team badly miscalculated the demand ramp-up in Canada’s recreational weed market following legalization, as well as the company’s international opportunity. Aurora has since closed a number of facilities and even sold others to reduce its operating expenses.
Another issue for Aurora Cannabis is its history of grossly overpaying for acquisitions. Despite already recognizing billions of dollars in write-downs, the company is still lugging around 888.4 million Canadian dollars (about $699 million) in goodwill on its balance sheet. This is effectively premium Aurora paid that it may never recoup — and it accounts for 35% of the company’s total assets.
But the prime reason to avoid Aurora Cannabis is its persistent history of share-based dilution. The company made a habit of funding its acquisitions with its stock as collateral. It’s also been issuing shares throughout the years to build up its cash reserves since the company is still losing money and gaining no traction in the Canadian recreational weed space. Since mid-2014, Aurora’s share count has ballooned from a reverse split-adjusted 1.3 million shares to north of 198 million.
There are plenty of great pot stocks to choose from. Aurora isn’t one of them.
Sundial Growers
Back in March 2021, I labeled Sundial Growers (NASDAQ:SNDL) the “absolute worst marijuana stock money can buy.” Since then, Sundial’s shares have fallen 57%. While its downside is likely limited by its large cash balance, there’s simply little upside with a pot stock whose management team lacks direction.
Throughout most of 2020, Sundial Growers was trying to be a traditional cannabis wholesaler. Unfortunately, the margins associated with wholesale marijuana are considerably smaller than that of retail cannabis. Though the company eventually decided to switch things up and focus on retail cannabis, it didn’t work out too well given that it was forced to build its retail presence from the ground up. The result has been consistent losses from its cannabis operations, excluding a number of one-time benefits and derivative revaluations.
The far bigger concern here for investors is the…
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