7 Marijuana Stocks to Buy That Will Survive 2020

Investors looking for marijuana stocks to buy have no shortage of options that are cheaper than they were a month ago, let alone a year ago. But caution is advised: in this sector, it’s an enormous risk to chase “cheap” stocks…

That said, this risk again popped up this week when Aurora Cannabis (NYSE:ACB) reported earnings. ACB already was down more than 90% from last year’s highs before the release, but soft guidance for the current quarter sent ACB stock plunging another 29%.

Overall, Aurora’s results highlight the continuing struggles for the sector. And those struggles are likely to lead to a shakeout in the industry. There still are too many producers with too much capacity. The black market in Canada has held up better than expected. Leverage is a concern for a number of companies, including Aurora, Hexo (NYSE:HEXO) and others.

Those factors don’t mean that there are no marijuana stocks to buy in the entire market. Rather, it means that investors should be prudent and focus on the strongest companies. After all, even the best operators will need time to work through the industry’s issues.

Investors should only own shares of those companies whose financial strength guarantees that time. That said, these are seven such companies:

  • Canopy Growth (NYSE:CGC)
  • Cronos (NASDAQ:CRON)
  • Aphria (NASDAQ:APHA)
  • GrowGeneration (NASDAQ:GRWG)
  • Cresco Labs (OTCMKTS:CRLBF)
  • Curaleaf Holdings (OTCMKTS:CURLF)
  • Trulieve Cannabis (OTCMKTS:TCNNF)

So, with all of that in mind, let’s dive in.

Marijuana Stocks to Buy: Canopy Growth (CGC)

Canopy Growth remains the most valuable cannabis company in the world — but it’s much less valuable than it was eighteen months ago. CGC stock has fallen more than 70% from last year’s highs, and sits at a four-month low after dropping 9% last Wednesday in sympathy with Aurora’s earnings miss.

The pressure on the stock makes some sense. Again, there are real pressures on the sector. The Canadian market unquestionably has been a disappointment. However, the problem hasn’t been just sales, but margins. Significant overcapacity has led to a “race to the bottom” in pricing. As a result, Canopy posted an adjusted gross margin of just 7% in its most recent quarter. The company’s Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) loss of $92.2 million was some 83% of revenue.

But, looking forward, there is reason for some optimism. Canopy’s financial position remains strong. Thanks to the massive investment by Constellation Brands (NYSE:STZ,NYSE:STZ.B), the company still has $1.3 billion in cash, and just over $400 million in debt. At the same time, the company has established leading brands, built out its medical marijuana business, and expanded beyond Canada.

As a result, Canopy should be well-positioned to manage what is likely to be a shrinking industry. Cannabis companies already are falling by the wayside. More will follow, relieving some of the overcapacity issues.

Meanwhile, assets and brands will be available on the cheap. And new management (David Klein, formerly Constellation’s chief financial officer) should take a more sober approach and better manage the remaining cash.

Collectively, the Canopy story so far has disappointed — but it’s far from over.

Cronos (CRON)

It’s probably not time to add CRON stock to the list of marijuana stocks to buy. But we’re getting closer.

The case for CRON is somewhat similar to that of Canopy. Cronos, too, received a large cash infusion from an American company. In this case, the investor was tobacco giant Altria (NYSE:MO). Cronos actually has a higher net cash balance than Canopy, closing its second quarter with $1.2 billion in cash and zero debt.

The difference is that Cronos hasn’t built much of a business at all. That’s mostly by design: Cronos purposefully avoided building out significant production capacity. It instead is buying its supply and looking to create branded flower and so-called “Cannabis 2.0” products like vapes and edibles. It’s also invested heavily in research and development for fermentation processes as well.

As a result, Cronos’ fundamentals look dismal. In the second quarter, the company generated less than $10 million in sales. Adjusted operating loss was three times as high. And like Canopy, Cronos needs its industry to get healthy.

However, also like Canopy, Cronos has the cash to wait out industry problems — and to take advantage of struggling competitors. That’s not quite a bull case yet, but experienced investors can consider using the options market (as I have) to either get paid to wait or own CRON stock at a price below even Wednesday’s close just above $5.

Marijuana Stocks to Buy: Aphria (APHA)

At the moment, there may not be a better cannabis company in Canada than Aphria. Unlike so many peers, Aphria is nicely profitable on an EBITDA basis. Revenue continues to grow, climbing 129% in fiscal 2020 (ending May). The company is a player in Europe as well.

There’s simply a lot to like here, yet APHA stock doesn’t seem to get much respect. APHA has outperformed the sector, to be sure, but still has declined 15% year-to-date. Shares have faded recently to a two-month low.

Overall, the picture is slightly murkier looking forward. Aphria’s balance sheet is not quite pristine. Cash just shy of 500 million CAD is nearly offset by roughly 400 million CAD in borrowings. Bankruptcy risk seems minimal, but Aphria does lack the dry powder of its larger rivals.

Still, with a pullback below $5, APHA stock looks at least intriguing. Certainly, it should make any list of marijuana stocks to buy. And in a sector where execution generally has been abysmal, Aphria truly stands out.

GrowGeneration (GRWG)

Given the struggles among Canadian cannabis producers, investors looking for marijuana stocks to buy of course can look elsewhere. They can look outside Canada — and to companies that aren’t actually producing cannabis.

That said, GRWG stock fits on both counts. The U.S. retailer serves as a “picks-and-shovels” play on cannabis growth, as InvestorPlace contributor Luke Lango put it. The company operates retail locations nationwide that serve both commercial and individual growers. And with gardening as a whole seeing a general uptick in demand during the pandemic, there’s a non-cannabis tailwind as well.

Nonetheless, there are risks. GRWG stock isn’t cheap, and the stock recently was the target of a bearish report from Hindenburg Research, the same firm that’s correctly highlighted significant problems at electric truck manufacturer Nikola (NASDAQ:NKLA).

Still, the opportunity is large. The market is…

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