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Canadian marijuana stocks are still struggling to find momentum. And Aurora Cannabis (ACB) became the latest pot producer in the nation to cut back. So are any Canadian marijuana stocks buys now?
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Aurora on Wednesday said it would lay off around 12% of its staff, as the industry deals with competition, losses and overexpansion. The company said the layoffs were part of earlier efforts to save around 70 million to 90 million Canadian dollars “to support our path to profitability.”
Aurora and its rivals have dealt with layoffs, facility closures and executive-team shakeups over the past few years. Optimism over U.S. legalization has soured. And even if the U.S. passes full federal legalization, the implications for Canada’s pot producers are unclear.
The House passed the MORE Act, a federal cannabis decriminalization bill. But its path in the Senate is unclear. Meanwhile, Senate Majority Leader Chuck Schumer pushed back the timeline for introducing a separate decriminalization bill from April to “before the August recess.” Rep. Nancy Mace, R-S.C., has also unveiled a bill to deschedule cannabis.
Twenty-four U.S. senators, led by Jeff Merkley and Jacky Rosen, in a recent letter to lawmakers urged the House and Senate to keep the SAFE Banking Act — which would open up banking access to the cannabis industry — in a bigger bill intended to strengthen manufacturing and supply chains.
But market share continues to shrink for big Canadian marijuana stocks like Hexo (HEXO), Canopy and Tilray (TLRY).
Below, we take a look at some of the marijuana stocks trading on the major U.S. exchanges.
IBD Live: A New Tool For Daily Stock Market Analysis
Marijuana Stocks and IBD
IBD only has full ratings for marijuana stocks in Canada that trade on the big U.S. exchanges. But it also tracks stocks related to the marijuana industry, like Innovative Industrial Properties (IIPR), a U.S. cannabis-focused real-estate investment trust.
MarketSmith also has limited ratings data for some U.S.-based cannabis producers that operate in legal states, like Curaleaf (CURLF), Green Thumb Industries (GTBIF) and Trulieve (TCNNF). Those marijuana stocks trade over the counter and in Canada.
Cronos Stock Chart
Cronos stock has a 38 Composite Rating and an EPS Rating of 66. Ratings for other marijuana stocks are also weak.
Cronos Group said it lost nine cents per share during its first quarter, reported in May. That was in line with expectations. Revenue of $25 million was above estimates for $24 million. Extracts used for vapes and edibles in Canada’s recreational market, along with sales gains in Israel’s medical market, helped sales.
Jefferies analyst Owen Bennett, in a research note, said the investment case for Cronos centered not on its operations, but its piles of cash from Altria (MO), which has a 45% stake in Cronos.
He said that “this cash provides optionality, and potentially critically, optionality around U.S. exposure, and the ability to secure U.S. assets ahead of/or post any favorable U.S. legislative change — which we believe could come soon.”
Cronos has a deal in place that allows a subsidiary to take a roughly 10.5% stake in PharmaCann, a U.S. multi-state operator, contingent on U.S. federal legalization and regulatory clearance.
Hexo Stock Chart
Hexo (HEXO) stock has a weak 3 Composite Rating. Its EPS Rating is a worst-possible 1.
Hexo has cut jobs and tried to shrink costs and lower its debt burden. The company in April appointed a new CEO and a new acting CFO. Tilray recently agreed to buy up millions in Hexo’s convertible debt — potentially giving that company a big stake in Hexo down the road.
Canopy Growth Stock Chart
Canopy lost $1.14 per share, worse than the 23 cents expected, when it reported earnings in May. Sales of $87.6 million missed expectations and were down from the prior quarter and year.
Cannabis revenue fell. Investments in Biosteel, a sports-drink maker it majority owns, and the company’s U.S. strategy will weigh on margins and profits in the coming quarters.
Canopy has a CBD business in the U.S., which includes brands from the likes of Martha Stewart. It has deals in place to eventually buy U.S. cannabis operator Acreage Holdings, California extract maker Jetty Extracts, and Wana Brands, an edibles maker in the U.S.
Canopy Growth stock has a 6 Composite Rating and a 50 EPS Rating.
Tilray Stock Chart
Tilray in April reported mixed third-quarter earnings.
The company merged with Aphria last year. It also owns a hemp-granola maker, a craft brewer and a distiller — with hopes of selling THC cannabis products through at least some of those companies whenever federal legalization happens in the U.S. Along with the Hexo deal, it also has a deal that could eventually hand it a stake in struggling U.S. cannabis retailer MedMen.
Some marijuana stocks analysts have questioned that approach. The stock has a Composite Rating of 25 and an EPS Rating of 70.
Aurora Cannabis Stock Chart
Aurora Cannabis (ACB), when it reported quarterly results in May, lost 4.72 Canadian dollars per share, well below expectations for a 23-cent per-share loss. Sales missed expectations, and were down from the prior quarter and year.
Aurora has sold off production facilities in Canada and abroad in recent months in an effort to cut costs. But in March, said it reached a deal to acquire Thrive Cannabis. The move, it said, would advance its “premiumization” strategy.
The stock has a 1 Composite Rating and an 18 EPS Rating.
Innovative Industrial Properties Stock Chart
Innovative Industrial Properties buys properties from pot growers and then leases them back. In doing so, they provide an infusion of funding for cannabis companies that might otherwise have more difficulty accessing traditional banking services.
Shares sank in April after short seller Blue Orca Capital said it had taken a position in the company, citing what it said were financial struggles among its tenants.
“In the last 18 months, we think IIPR’s loan book appears to have degraded significantly as the sector has become more competitive and IIPR stretched for lower quality tenants in search of continuing growth,” Blue Orca said in a report making the case for its position.
IIPR, in response, said the report contained “numerous false and misleading statements” about the company. And it said the report “is flawed and demonstrates a basic lack of understanding of commercial real estate generally, the regulated cannabis industry and IIP’s straightforward, simple business model.”
The company in May reported mixed first-quarter earnings. Shares have a 52 Composite Rating. Their EPS Rating is 96, indicating strong profit growth overall.
Marijuana Industry ETFs
Amid the volatility in marijuana stocks, one way to avoid stock-specific risk is via ETFs. The ETFMG Alternative Harvest (MJ) ETF is one such option. The AdvisorShares Pure Cannabis (YOLO) ETF and the Cambria Cannabis ETF (TOKE) are others.
Another ETF, AdvisorShares Pure US Cannabis ETF (MSOS), offers investors exposure to U.S. multistate operators, which analysts say are on a sturdier path to profitability.
Are Marijuana Stocks Buys Right Now?
So are any marijuana stocks a good buy right now? Based on IBD’s analysis, no.
IBD’s research shows that investors would be better served looking for stocks with stronger overall ratings that are closer to their highs.
Check out IBD Stock Lists and other IBD content to find dozens of the best stocks to buy or watch.
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