It’s expected that between 2019 and 2027, the global marijuana industry will grow at a compound annual growth rate of 18.1%. By 2027, the market is expected to be worth $73.6 billion. Given the big potential for growth, marijuana stocks have been in focus.
However, marijuana stocks have been on a decline since March 2019, thanks to slower-than-expected growth and regulatory headwinds.
Even with near-term challenges, the outlook for the industry remains bright. As marijuana stocks bottom out, it’s a good time to accumulate some quality stocks.
Let’s have a deeper look at three names in particular:
3 Marijuana Stocks to Buy: Aurora Cannabis (ACB)
Like other marijuana stocks, ACB stock has been on a sustained decline in the last one year. However, I believe that there are several positive triggers on the horizon.
One of the biggest challenges for Aurora Cannabis has been the high rate of cash burn. This has translated into equity dilution and value erosion. With the company working on the business transformation plan, the cash burn is likely to decline significantly in the coming quarters. The company is also targeting positive adjusted EBITDA by the first quarter of 2021.
In December 2019, Aurora Cannabis initiated the rollout of cannabis 2.0 products. The products include edibles, vape pens and other derivatives. These value-added products command a higher EBITDA margin. If sales gain traction in the coming quarters, the company will be on track to achieve the target for positive EBITDA.
Another reason to like Aurora Cannabis is the fact that the company is aggressively working on clinical trials for medicinal cannabis. Evidence based cannabis medicine is the key to this segment’s growth. In the coming years, medicinal cannabis can potentially provide an additional growth trigger.
Overall, it seems to me that ACB stock has bottomed out. If the current initiatives work in favor of the company, the stock can move higher sharply.
Canopy Growth Corporation (CGC)
CGC stock has been sideways in the last few months and I believe that a bottom is in place. Therefore, current levels of $16.15 provide a good accumulation opportunity.
Canopy Growth has also been focusing on value-added cannabis products. The company already launched cannabis-infused chocolates, vapes and beverages. In addition, the company is developing a new line of skin care and sleep solution products. These products should help in EBITDA margin expansion.
On the medicinal cannabis front, the company has already conducted 60 human health clinical trials. The trials are for medical conditions like lack of sleep, pain and anxiety, among others. Focus on research and development is a key reason to remain positive on Canopy Growth.
The company acquired C3, which is Europe’s largest cannabinoid-based pharmaceuticals manufacturer. The acquisition will help the company in the long term.
Canopy Growth expects positive adjusted EBITDA for the company by the end of 2022. While that’s still far away, CGC stock should react positively in the coming quarters if cash burn gradually declines and margins improve.
Cronos Group (CRON)
Even as Cronos Group struggles with negative cash flows, the biggest advantage for the company is the backing from Altria Group (NYSE:MO).
I believe that Cronos is building presence in some key markets that can trigger long-term growth. As an example, the company entered the U.S. through the acquisition of Redwood. The company also has presence in Canada, Germany and Israel and is targeting Latin America for business growth.
Another reason to like Cronos Group is that the company has a diversified portfolio of brands. The business segments include wellness, premium adult use and mainstream adult use. In the medicinal cannabis, the company is selling dried cannabis and cannabis extracts directly to patients.
As the use of legal marijuana gains traction in the U.S. and Europe, I believe that Cronos Group will witness strong top-line growth.
From a stock price perspective, CRON stock has declined by 60% in the last one year. However, in the last six months, the stock has declined by just 10%. I believe that CRON stock is likely to bottom out at current levels.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock-specific articles with focus on the technology, energy and commodities sector. As of this writing, he did not hold a position in any of the aforementioned securities.
