The first quarter has come to a close — and oh, what a quarter it was for cannabis. After Joe Biden’s victory for the presidency in November, hopes were raised that cannabis reform might be on the docket in the United States. But it was the surprising victory for Democrats in early January — which allowed them to retake the U.S. Senate — that really got investors fired up about the prospect of reform. Even though we’ve yet to…
see anything change with regard to marijuana’s scheduling at the federal level, the prospects for legalization are better than they’ve ever been.
During the first quarter, the marijuana-focused ETFMG Alternative Harvest ETF rocketed higher by nearly 60%, with investors flocking to the cannabis stocks like it was 2018 all over again.
However, four marijuana stocks really stood out for their first-quarter gains. When the curtain closed, all four of these pot stocks ended the quarter higher by at least 139%.
Sundial Growers: Up 139%
Despite being only the fourth-best performing marijuana stock in Q1, Canadian licensed producer Sundial Growers (NASDAQ:SNDL) has created more buzz than any other pot stock. In addition to the possibility of U.S. cannabis reform, Sundial had two primary catalysts pushing it higher through the first three months of the year.
To begin with, Sundial has become a core target of the Reddit frenzy. For much of the past three months, retail investors on Reddit’s WallStreetBets chat room have been banding together to buy shares and call options in stocks that have high levels of short interest. The goal for these retail investors is to effect a short squeeze, which would send pessimists betting against these companies scurrying for the exit all at once. A short squeeze can create an event where a stock’s share price skyrockets. At one point in February, Sundial’s stock was up over 500% on a year-to-date basis.
The other big catalyst looks to be the company’s balance sheet. As of mid-March, Sundial had $719 million Canadian in cash (about $572 million) and no debt. Investors are clearly excited about this mountain of cash and what that might mean if the U.S. legalizes marijuana at the federal level.
Then again, management’s aggressive money-raising tactics are precisely why this is the worst marijuana stock money can buy. In a five-month stretch between the start of October 2020 and the end of February 2021, Sundial issued 1.15 billion new shares of stock. What’s more, it filed to sell up to another $800 million worth of common stock via at-the-market offerings. Soon, Sundial could have north of 2 billion shares outstanding, which could make it virtually impossible for the company to ever deliver meaningful earnings per share.
To boot, Sundial Growers isn’t close to profitability and it’s one of the slower-growing North American marijuana stocks. It’s been stellar through Q1, but it’s a stock investors should avoid.
OrganiGram Holdings: Up 161%
The third best-performing pot stock in the first quarter was Canadian licensed producer OrganiGram Holdings (NASDAQ:OGI), which ended higher by a cool 161%. Like Sundial, there were two major catalysts, beyond the rumors of U.S. legalization.
For starters, OrganiGram was swept up in the Reddit frenzy of early February. Even though OrganiGram’s short interest isn’t particularly high, retail investors also made it a point to chase after momentum-based penny stocks in the first quarter. With a share price that ranged between $1 and $6 in Q1, OrganiGram fit the bill for young investors.
The second and more tangible catalyst for the company was the March 11 announcement that it had entered into a strategic research and development collaboration with British American Tobacco (NYSE:BTI). A subsidiary of British American Tobacco took a 19.9% equity stake in OrganiGram, with the duo pledging to work on developing high-margin derivative products, with an initial focus on cannabidiol (CBD) — the cannabinoid that doesn’t get users high. British American Tobacco should also be able to help introduce OrganiGram’s products into Europe and other international markets.
OrganiGram offers a number of competitive advantages that make it an attractive cannabis stock to hang onto over the long run. For example, operating a…
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