Not that long ago, almost everyone had a bad case of weed mania – myself included. But then, we all got a harsh dose of reality.
Canada isn’t that big. Cannabis was still illegal federally in America, which limited trade prospects. Enthusiasts really love their dealers. And so on and so forth.
As a result, the past few years have been harsh. Even after rallying from 2020 lows, some stocks are down 90% from all-time highs.
But the cannabis depression has had its upsides. Companies with bad fundamentals have been wiped off the map, while bigger players have been forced to right-size their operations.
Because of this, some observers think the survivors of the cannabis crash have a bright future. But is that accurate?
Below, I’ll highlight Canada’s top three cannabis companies to see if they have medium to long-term growth potential.
Let’s get started!
Tilray (NASDAQ: TLRY)
In the media, cannabis users are portrayed as young, unmotivated slackers. But that stereotype erases a whole other side of this plant.
Every day, medical cannabis helps alleviate the suffering of millions of people. That’s the vertical that Tilray operates in, as they produce flowers, oils, and other products that tackle everything from anxiety to chronic discomfort.
In May 2021, Tilray also merged with Aphria. In doing so, they gained access to a wider variety of medical cannabis products. Even as we wait for additional states and countries to legalize fully, many allow for medical use. Thus, as cannabis’s popularity as treatment continues to increase, so will profits.
Now, let’s talk about TLRY’s stock price. TLRY maybe 90% off its 2018 peak, but leave the past in the past. Over the past year, TLRY has risen from a 52-week low of 4.41 to 13.26, its most recent close.
But with a bit of retracement from earlier in the year, TLRY may be set to run again. Keep a close eye on this one.
Canopy Growth (NASDAQ: CGC)
As recreational cannabis firms go, Canopy Growth is a giant. With a market cap of over 8.59 billion USD, they are easily the biggest in Canada.
A quick look at their line of products tells the story. They appeal to multiple demographics – from Tweed to CBD products under the Martha Stewart label, no other company is as diversified as CGC.
But institutional investors couldn’t care less about that. To them, the company’s fundamentals are far more important. And in recent years, those figures haven’t impressed them. While CGC has worked to shed excess assets and inventory, it is still being weighed down by impairment charges and insane cash burn figures.
But on the bright side, their sales have improved. In Q2 2021, CGC booked a profit of 390 million CAD, much of it on the strength of increased revenue. But I don’t want you to get too excited – this stock is still massively overvalued.
Right now, CGC is trading at an eye-watering 12 times future revenue. That’s far removed from its rivals Tilray and Aurora, who are valued at seven and five times future revenue, respectively.
A day will come when CGC will be a great buy. But it is not this day – wait for them to fall into the single digits. Then, we can discuss.
Aurora Cannabis (NASDAQ: ACB)
By market capitalization, Aurora is right behind Canopy Growth, as it’s currently valued at 1.68 billion USD. But like its rival, Aurora has suffered plenty lately.
Sadly, many of their woes stem from unforced errors. For example, to raise cash, ACB has repeatedly issued additional shares for sale. Because of this, they’ve diluted original shareholders by more than ten times since 2018.
Secondly, sales aren’t doing so hot. In ACB’s most recent quarter, sales were down 21% YoY. On the recreational side of their business, YoY revenue was halved.
Those are grim numbers. And when you look at ACB’s stock chart, the result has been carnage. At the latest market close, ACB was worth 6.69 – that’s almost two-thirds lower than its 52-week high of 18.98.
Aurora’s options aren’t great looking ahead. Right now, Aurora is hoping that reopening economies post-COVID will boost sales. Similarly, they would be thrilled if Biden legalized cannabis in the USA. But neither addresses the internal issues that ACB currently has.
Is There Nowhere Left to Go But Up?
Now, anything can happen. After witnessing the beating that cannabis stocks have taken the past three years, it’s tempting to think that a resurgence is possible.
But you mustn’t ignore the fundamentals – even if the companies implicated are market leaders. The companies mentioned above have indeed restructured, but it’s not clear if they have a realistic appraisal of the market.
At some point, yes – I do believe America will legalize cannabis federally. And when they do, you’ll be in a position to profit – if you’ve invested in quality cannabis stocks. But at this stage, many top brands have yet to right the ship.
Some are on track and may get there. Others may falter, though – so keep watching and invest with care.