It’s perfectly fine to speculate in the cannabis market. However, we don’t want to see you throw good money at bad marijuana stocks. And some of them, unfortunately, don’t look like they’ll survive through the end of 2020.
As an informed investor, it’s important to be able to recognize the signs of a troubled company or stock. This is especially true with cannabis stocks, which can be quite risky sometimes.
All things considered, these marijuana stocks regrettably may not survive 2020:
- Hexo (NYSE:HEXO)
- KushCo (OTCMKTS:KSHB)
- MedMen (OTCMKTS:MMNFF)
- Namaste Technologies (OTCMKTS:NXTTF)
- The Valens Company (OTCMKTS:VLNCF)
- Terra Tech (OTCMKTS:TRTC)
- American Green (OTCMKTS:ERBB)
As you’ll surely see, these stocks probably shouldn’t be on your must-own list. So, here’s the rundown on the marijuana stocks that might be facing an existential crisis in the very near future.
Troubled Marijuana Stocks: Hexo (HEXO)
In the world of stocks, more isn’t necessarily better. Canadian cannabis-centered consumer packaged goods company Hexo may be proving this very point. The company announced not long ago that it’s issuing and selling 34.5 million CAD ($25.5 million) worth of new HEXO shares.
Understandably, premarket traders dumped HEXO stock to the tune of 8% upon hearing this development. Diluting the value of the shares in an attempt to raise capital shows that Hexo might be desperate for quick cash. It’s oftentimes not a good sign when a company does this, so you should consider HEXO a no-go.
Having a cool name is a nice perk, but it just won’t be enough to save KushCo this year. The company’s fiscal third quarter provided enough data to dissuade most prospective KSHB stock investors. For one thing, KushCo’s net revenue for the quarter marked a 46% year-over-year decrease.
The company is also seeing its cash position size shrink. At the end of the fiscal third quarter, KushCo had approximately $11.1 million in cash. That’s a fraction of the $3.9 million in cash the company had as of Aug. 31, 2019. This isn’t encouraging and doesn’t bode well for KSHB stockholders.
Would you have to be a madman to buy MedMen? Not quite, but the math just doesn’t add up to a positive outcome in 2020 for MMNFF stock. Put it this way: during the March quarter, MedMen managed to post a $46 million loss despite $40 million in quarterly sales.
Where did all of that money go? Could some of it have gone towards the airplanes and Cadillac Escalades (paid for by the company, of course) that former CEO Adam Bierman had demanded? These lingering questions should be off-putting to any forward-thinking pot-stock investor.
Namaste Technologies (NXTTF)
Being a cannabis e-commerce company sounds like a great business model. But in the case of Namaste Technologies, business hasn’t been so great lately. This is evidenced by the net loss of $7.4 million posted during the company’s first quarter.
Additionally, a closer look into NXTTF stock reveals a trailing 12-month earnings per share loss of 7 cents. That’s pretty unsettling when we consider that the share price is less than 30 cents. There’s no price-to-earnings ratio to speak of here, so it’s difficult to measure the value of NXTTF stock. Perhaps it’s best just to avoid investing in Namaste altogether.
The Valens Company (VLNCF)
Known for manufacturing cannabinoid-based products The Valens Company can’t seem to get a break from the analyst community lately. In fact, eight analysts recently slashed their consensus price target on the Canadian version of the company’s stock by an average of 9.8%.
Those same analysts cut their average 2020 revenue forecast for The Valens Company from 137 million CAD to 129 million CAD. Is it because the company seems to be focusing on the vaping market lately? That’s a risky market to be involved in now that the health issues of vaping have come into the spotlight. Thus, it could be a smart move to heed the analysts’ warnings and stay away from VLNCF stock.
Terra Tech (TRTC)
To be blunt, American cannabis cultivator Terra Tech simply doesn’t offer a strong value proposition. Check the stats on TRTC stock and you’ll discover that the trailing 12-month earnings per share comes in at a loss of 43 cents per share. The share price is below 15 cents, so Terra Tech doesn’t appear to have a firm fiscal foundation.
Moreover, Terra Tech posted a net loss of $17.33 million during the three months ending on March 31. That’s the equivalent of a loss of 11 cents per basic and diluted share. It’s hard to admit it, but it’s questionable whether a company with these financial facts can even make it all the way through 2020.
American Green (ERBB)
It’s fine to borrow money from time to time, but medical cannabis technology company American Green might be borrowing too much green. During the 12 months ending on March 31 of this year, the company borrowed $450,000. And during the 12 months prior to that period, American Green borrowed $1,668,300.
That’s an awful lot of money for a small company to have to repay. It’s also a hard pill for ERBB stockholders to swallow as they’ll have to digest negative earnings and no price-to-earnings ratio. The ERBB share price has already declined substantially this year and could be headed toward zero with little chance of recovery.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.