Marijuana stocks have taken investors for a wild ride in 2019. When the first quarter came to a close, more than a dozen of the most popular pot stocks had gained at least 70%, and the expectation was that numerous cannabis stocks would be pushing toward profitability by year’s end…
However, now that we’re just weeks from the end of 2019, most marijuana stocks are at or near multiyear lows, with many losing at least half of their value since March or April. A combination of supply issues in Canada and high tax rates in the U.S. have kept the green rush from taking off.
What this volatility hasn’t done, though, is keep millennials from investing in cannabis stocks. According to online investing app Robinhood, five marijuana stocks are among its 50 most-held companies. This is notable because the average age of Robinhood’s more than 6 million members is 32, meaning it’s an excellent representation of what’s catching the attention of millennial investors. Listed in descending order, here are millennials’ favorite cannabis stocks.
1. Aurora Cannabis
To say that millennial investors love Aurora Cannabis (NYSE:ACB) would be an understatement. Not only is it the most-held stock on Robinhood, but it’s not even close. As of this past weekend, 572,428 investors owned shares of Aurora Cannabis, compared to 314,441 who held Ford, the second most-held stock on the app. Put in another context, almost 1 in 10 Robinhood members owns a stake in Aurora Cannabis.
Why Aurora? Aside from its psychologically low share price of $2.42, which may be attracting investors, it’s projected to be the production leader in Canada and has a larger geographic presence than any other cannabis stock. If Aurora were to bring all 15 cultivation facilities to full production, it could likely yield close to 700,000 kilos a year. This would, presumably, make it a logical choice to land lucrative long-term supply deals, as well as export to many of the 24 foreign countries it currently operates in.
On the downside, Aurora Cannabis is lugging around an unsightly $3.17 billion Canadian in goodwill following more than a dozen acquisitions since Aug. 2016. After witnessing a number of pending buyout deals get amended in recent months, it’s become apparent that Aurora overpaid (by a lot) for its previous acquisitions. This makes it likely that the company’s goodwill, which represents 57% of total assets, will result in a mammoth writedown in the foreseeable future. That’s something for millennials to be wary of.
2. Cronos Group
Cronos Group (NASDAQ:CRON) is the next most popular cannabis stock, and the ninth most held company on Robinhood.
The allure of Cronos Group primarily ties into its deal with Altria Group (NYSE:MO) that saw Altria take a $1.8 billion stake in the company. The deal, which closed in March, gave Cronos much needed capital that it can use to expand internationally and promote higher-margin derivative products, which are set to hit Canadian dispensary shelves in about a week. For Altria, it was a means of diversifying beyond tobacco sales, which have been challenging in the U.S. with adult cigarette smoking rates hitting an all-time low. The thesis here being that with plenty of cash and Altria in its corner, Cronos Group should be a winner.
However, Cronos has looked far from a success story, thus far. It’s significantly trailed its comparably sized peers in the production department, and its initial derivative sales could struggle given the vape-related health scare in the U.S. that the Centers for Disease Control and Prevention believes may have been caused by vitamin E acetate as an additive. This implies that Cronos Group still has a lot of growing up to do before it delivers for investors…
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