Investing in marijuana stocks is typically a double-edged sword. These companies have garnered investor interest for their long-term potential, but continue to post sizable net losses.
Additionally, the sluggishness in the wider legalization process continues to hamper growth and access to finance. The index representing the industry The Alternative Harvest ETF (NYSEARCA:MJ) has shed 29% of its value this year.
However, no one can deny the potential in the industry. Cannabis continues to gain wider acceptance as nations realize its effectiveness from a medical standpoint. The global cannabis market is will grow at a massive 28.58% compound annual growth rate (CAGR) by 2025.
Though the pandemic has slowed down their progress, expect marijuana stocks to make a strong recovery in the coming months.
Hence, let’s look at some of the marijuana stocks that you should follow as we get closer to the post-pandemic world.
Marijuana Stocks: Canopy Growth (CGC)
Canopy Growth is involved in the production and distribution of recreational and medical cannabis. It is one of the largest pot growers in the world, with a market capitalization of almost $6 billion.
The market slowdown triggered by the novel coronavirus resulted in a 23% drop in CGC stock this year.
However, the immense potential of the CBD market makes it an interesting play for the future. Its financial performance in its most recent quarter was impressive and set it up for a solid end to the year.
Revenue grew 22% from the prior year. The majority of revenue was derived from outside the Canadian market.
Additionally, the company is getting closer to becoming free cash flow positive with a 50% improvement in the quarter. Total cash stands at roughly $2 billion, which provides it with an impetus to expand its market share.
Aurora Cannabis (ACB)
Aurora Cannabis is one of the largest cannabis companies in Canada. The repressed investor sentiment due to Covid-19 has led to a 73% drop in ACB stock’s price. However, the company is en route to achieve profitability in the third or fourth quarter of 2021.
Its latest results are encouraging, as revenues grew 15.9% from the prior year to CA$75.5 million.
The company benefited from cannabis stockpiling volumes rising 39% year-over-year.
Additionally, net loss reduced by 14.2% to CA$137.4 million. This comes on the back of a significant restructuring to cut costs, which resulted in improved financial performance. Selling and administrative expenses run rate will fall to CA$45 million from CA$60 million.
Also, the company aims to maintain capital expenditures below the $100 million threshold in the second half of the year
Aphria is amongst the largest Canadian cannabis companies with a market cap of over $1.3 billion. Like with the rest of the sector, APHA stock has taken a beating and is down 12.2% this year.
However, a relatively strong liquidity position and continued growth in its top-line makes the company an interesting long-term play.
Aphria recently posted a massive quarterly net loss of CA$98.8 million compared to CA$15.8 million net income in the year-ago period. However, the major chunk of the loss is attributable to a CA$64 million impairment charge and a CA$27 million convertible debenture expense.
The company’s top line, though, showed promise, with an 18.4% increase in revenue from the prior-year period.
Aphria recently closed a cannabis supply deal with Isreal, which will boost its revenue further.
Additionally, it also has an impressive cash balance of $CA 497 million and a current ratio of 5.3.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.