It has been a rough ride for marijuana stocks so far this year as industry-wide concerns weighed on investors’ confidence in the sector. However, sentiment can turn on a dime — especially in an industry that’s as new as this one and that means now is a great time to start looking for potential value plays.
The trouble with choosing a winner in the pot industry is that there are a lot of bad apples out there. Over the next decade we’ll likely see a lot of today’s players fade into the background, which makes it difficult to make a long-term pick.
With that in mind, here’s a look at four marijuana stocks to snuff out and one that could light up your portfolio.
Marijuana Stocks to Sell: Chronos Group (CRON)
Every stock on this list has suffered from Canadian supply issues and questions regarding legalization in the U.S., and Chronos Group (NASDAQ:CRON) stock is no exception.
However, Chronos stock has more going on than just industry-wide struggles. For starters, there’s the fact that the firm is trading at an undeserved premium compared to its peers. CRON’s most recent earnings showed that its perceived profits actually came from one-time cost savings and benefits, which should be concerning for long-term investors.
Plus, new worries about the health impact of vaping is likely to hurt CRON stock in the near term — as well as potentially the long term. Some claim that the Centers for Disease Control and Prevention’s warning about lung illnesses tied to vaping makes for a compelling contrarian play.
However, I disagree, as vaping, and especially THC-laced vaping, is still a relatively new industry that leaves plenty of room for it to be shut down or at very least avoided by the general public if the health concerns prove to be founded.
Aurora Cannabis (ACB)
Another beaten-down pot stock that is anything but a buy is Aurora Cannabis (NYSE:ACB). Aurora has also been hurt by the Canadian supply issues but like CRON, there’s more to this stock’s downfall than that. Part of the problem was ACB’s lackluster Q4 results, but the larger issue is that Aurora hasn’t positioned itself for the future.
Right now, Aurora’s financials are on shaky ground and with the marijuana market out of favor among investors, the firm might struggle to raise the capital it needs to fund its future growth. This may not have been such a problem if the firm had aligned itself with a big-name brand in the consumer goods industry, but unfortunately, ACB has been left on the outside.
ACB’s financial instability and inability to buddy up to a big brand are two massive red flags that investors simply can’t overlook.
Canopy Growth (CGC)
Unlike Aurora, Canopy Growth (NYSE:CGC) did lock down a big name partner — Constellation Brands (NYSE:STZ). That has not only given CGC stock a more solid financial footing, but it gives the firm access to the consumer market from a much more experienced player. That’s definitely worth something, but not enough to justify this company’s share price.
Even after losing more than half of its value this year, $25 per share is still a high price to pay for the Canadian pot company. That’s because the firm’s most recent results showed that marijuana sales were down and that has led Oppenheimer’s Rupesh Parikh to predict losses of more than $500 million over the next two years.
Plus there’s the fact that CGC currency has no-one guiding the ship since its founder and chief executive Bruce Linton departed in July. Of course, there’s a chance CGC stock could make a comeback if its new line of cannabis products are well received, but for now there’s too much uncertainty to make it worth considering at its current valuation.
CannTrust Holdings (CTST)
Like the rest of the companies on this list, CannTrust Holdings (NYSE:CTST) has been hit by the Canadian government’s inability to cope with an influx of marijuana licensing requests. However, CTST has been hit much harder than the rest of its peers because instead of waiting for years like the rest of the industry, CannTrust started growing cannabis in unlicensed rooms at one of its locations.
To make things worse, the decision to grow without a license was a purposeful one that has led to the departure of top-level executives, including former CEO Peter Aceto. Plus, more breaches of legality have apparently been found at the company’s other location.
There’s a big part of me that wants to treat CannTrust’s legal problems the same way I did Volkswagen’s (OTCMKTS:VLKAY) … as a buying opportunity. However, with the marijuana industry already under a great deal of strain and the fact that CannTrust is far from an experienced, established firm that can weather the storm is overriding that proposition. Instead, I’d back away from this risky situation for the moment.
Marijuana Stocks to Buy: Aphria (APHA)
Like the rest of the companies on this list, Aphria (NYSE:APHA) stock has been hit hard by declining sentiment in the marijuana space. Unlike the rest of the names on this list, that’s where the bad news ends. APHA is actually a pretty good pot stock that is simply trading lower because its peers are.
The firm turned in a good performance in the fourth quarter — revenue was above estimates and adult-use sales were up 158% from the previous quarter. APHA was able to turn a profit, a rare sight in the cannabis space. All in all, the firm proved that its strategy is working and it’s operations are solid, but investors don’t seem to care.
Instead, APHA has been lumped in with the rest of the marijuana sector and discarded. However unlike the rest of the industry, APHA stock isn’t wildly overvalued and its business isn’t in shambles.
If you’re looking to pick up a pot stock that has been hurt by the recent selloff, APHA stock is one of the best bets you can find right now.
As of this writing, Laura Hoy was long VLKAY.