Tech stocks might be all the rage on Wall Street, but it’s cannabis that could be this decade’s most promising growth story.
According to a recent report from New Frontier Data, legal weed sales in the U.S. could jump more than threefold between 2019 and 2025 to $41.5 billion. Meanwhile…
in 2019, New Frontier Data also estimated that Canadian weed sales would more than double to $4.6 billion by 2024.
North America is going green at a rapid pace, and marijuana stocks will need plenty of their own green (i.e., cash) to take advantage of this growing demand. The following five marijuana stocks entered 2021 with the most cash on their balance sheets, based on their most recent quarterly filing.
Canopy Growth: $1.37 billion
It probably comes as little surprise that the largest pot stock in the world, Canopy Growth (NASDAQ:CGC), is once again the cannabis cash king.
The bulk of Canopy’s cash came from multiple rounds of equity investments from spirits giant Constellation Brands (NYSE:STZ). Constellation initially invested about $190 million in October 2017 before really sinking its teeth in during the following year with a roughly $4 billion investment. At the moment, it owns a little over 38% of Canopy’s outstanding shares.
While $1.37 billion in cash might sound fantastic, this is actually down by more than $2 billion since November 2018, which is when the large equity investment from Constellation Brands closed. Canopy’s aggressive acquisition strategy, coupled with the previous management team turning a blind eye to the company’s bottom-line results, led to a persistent cash outflow.
David Klein, the former Constellation Brands CFO and current Canopy Growth CEO, has been doing everything he can to rein in costs over the past year. For instance, Klein oversaw the closure of 3 million square feet of indoor cultivating capacity in British Columbia to cut costs. Unfortunately, Canopy Growth is still losing a lot of money, meaning its cash-rich position isn’t as secure as you might think.
Cronos Group: $1.3 billion
Canadian licensed producer Cronos Group (NASDAQ:CRON) is the second-most cash-rich pot stock. Like Canopy Growth, its cash value ($1.3 billion) is down from the previous year.
Cronos only had about $20 million in cash on its balance sheet prior to closing a $1.8 billion equity investment from tobacco behemoth Altria Group (NYSE:MO) in March 2019. This deal gave Altria a 45% stake in Cronos.
The expectation has always been that Altria would offer its development, marketing, and distribution expertise to aid Cronos in developing high-margin vape products and other cannabis derivatives. The problem is that Canadian regulators didn’t OK the sale of derivative products until mid-December 2019. Plus, the rollout of these products has been marred by supply bottlenecks, often at the provincial level. As a result, Cronos has produced little in sales and burned through some of its cash on hand.
Likewise, the $300 million purchase of the Lord Jones cannabidiol-based beauty brand ($225 million of which was paid in cash) hasn’t yet paid commensurate dividends for Cronos. This is yet…
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