Canada legalized the recreational use of marijuana for adults in 2018, becoming the second country in the world to do so. However, even after three years of legalization, municipal bans on cannabis retailers have been…
depriving many communities across the country of brick-and-mortar cannabis stores, while other regions are overcrowded with stores.
It is noteworthy that even without federal legalization, U.S. cannabis market sales outperformed Canada’s in 2020. According to Bernstein analysts, there were approximately $2 billion in cannabis sales in Canada in 2020, while the U.S. hit some $17.5 billion in legal sales. Furthermore, there are high hopes that cannabis will be decriminalized soon in the U.S. Also, the buzz regarding the early legalization of cannabis in Canada is declining, as are the heady valuations of pot companies.
Although the global cannabis market has promising growth prospects, the industry has not progressed as quickly as expected and faces spotty legalization or decriminalization measures. Given this backdrop, the stocks of Canadian cannabis companies Canopy Growth Corporation (CGC – Get Rating), Cronos Group Inc. (CRON – Get Rating), HEXO Corp. (HEXO – Get Rating), and Neptune Wellness Solutions Inc. (NEPT – Get Rating) plunged in price last year. Also, given their weak fundamentals, we think these stocks are best avoided.
Canopy Growth Corporation (CGC – Get Rating)
Headquartered in Smiths Falls, Canada, CGC produces, distributes, and sells cannabis and hemp-based products for recreational and medicinal uses, primarily in Canada, the U.S, and Germany. The company operates through the two broad segments: Global Cannabis and Other Consumer Products. It offers dried cannabis flowers, oil and concentrates, and soft gel capsules.
On Dec.15, CGC announced that it had agreed with Dermapharm Holding SE, a European pharmaceutical company, to divest its subsidiary business, C³ Cannabinoid Compound Company GmbH. This might cause a loss of operative capability for CGC.
On Nov. 17, CGC unveiled its new lineup of flower offerings across its brands. However, it might take some time to gain a significant market share.
For its fiscal second quarter, ended Sept. 30, CGC’s revenue decreased 3.4% year-over-year to CAD145.65 million ($114.13 million). Its adjusted gross margin came in at a negative CAD68.02 million ($53.30 million), down 358% from the prior-year quarter. Its adjusted EBITDA worsened 89.8% from the same period in the prior year to negative CAD162.60 million ($127.41 million).
The negative $0.56 consensus EPS estimate for its fiscal year 2023 indicates a 286.7% year-over-year decrease.
The stock has declined 72.8% in price over the past year and 64.1% over the past six months to close yesterday’s trading session at $8.21.
This bleak outlook is reflected in CGC’s POWR Ratings. The stock has an overall F grade, which equates to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
CGC has an F Momentum grade and a Value, Stability, Sentiment, and Quality grade of D. Within the 191-stock Medical – Pharmaceuticals industry, it is ranked #190. The industry is rated F. Click here to see the additional POWR Rating for Growth for CGC.
Cronos Group Inc. (CRON – Get Rating)
Based in Toronto, Canada, CRON is a cannabinoid company that manufactures, markets, and distributes hemp-derived supplements and cosmetic products. The company offers its products through its e-commerce, retail, and hospitality partner channels, under Lord Jones and Happy Dance brand names.
On Dec. 31, shareholder rights litigation firm Schall Law Firm announced that it was…
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