The cannabis market is in disarray.
In Canada, where the recreational drug was legalized nationwide in 2018, the market has all but collapsed. High government taxes have pushed cannabis users to a thriving black market while too many companies have oversupplied the legal industry. The result for cannabis companies has been poor sales and plunging stock prices.
Most leading cannabis stocks, down 90% over the past five years, are now trading below $5 a share, putting them in penny stock territory. Dozens of cannabis producers have gone out of business and a wave of consolidation is now sweeping across the sector. At the same time, cannabis producers continue waiting for the drug to be federally legalized in the U.S., which would open up the American market to foreign entrants.
A glimmer of hope exists though, as the Biden administration recently recommended that the U.S. Drug Enforcement Administration (DEA) loosen federal restrictions on cannabis. So far however, little progress has been made toward national legalization.
The dire situation has led to extremely cheap valuations on many cannabis stocks, potentially offering an opportunity to investors. Let’s discover three of the most undervalued cannabis stocks to buy in September 2023.
Canopy Growth Corp. (CGC)
The most recent financial results from Canopy Growth Corp. (NASDAQ:CGC) were an improvement, though that’s not saying much. The cannabis producer posted a net loss of $42 million. It continues to restructure its operations and aggressively cut costs. The latest outcome was a big improvement over last year when Canopy Growth announced a net loss of $2.1 billion. Revenue in the most recent quarter totaled $121.1 million, up 2% from $118.7 million a year ago.
The company said that it reduced its operating costs by $47 million in its latest quarter. It’s also seeing higher revenues from its BioSteel sports drink unit and rising demand in the medical cannabis space.
However, the company continues to struggle against a thriving black market in Canada as it awaits U.S. federal legalization of the recreational drug. Still, CGC stock can be had for a steal right now, having declined 65% over the last 12 months to trade deep down on the penny stock league tables.
Tilray Brands (TLRY)
After acquiring several troubled cannabis companies, Tilray Brands (NASDAQ:TLRY) has emerged as the largest cannabis producer in neighboring Canada.
The company has been making some interesting moves lately, most recently buying eight craft beer brands in the U.S. from brewing giant Anheuser-Busch InBev (NYSE:BUD). The purchases make Tilray one of the largest craft brewers in America and help to deepen the company’s presence in the U.S. while it awaits cannabis legalization stateside.
The craft beer deal gives Tilray production facilities that stretch from Portland, Oregon to Patchogue, New York. The partnership comes after Tilray relocated its Toronto-based corporate headquarters to New York City this spring as it focuses almost entirely on its U.S. expansion. During this time, Tilray bought former cannabis rival Hexo Corp. in a deal worth $229 million. This further cements its position as Canada’s top cannabis producer, holding 13% market share. TLRY shares have declined 15% over the last 12 months and also trade as a penny stock.
Aurora Cannabis (ACB)
Aurora Cannabis (NASDAQ:ACB) is another penny stock that looks incredibly cheap right now. It declined 99% over the last five years, including a 38% plunge in the past 12 months. Like most cannabis producers, Aurora is struggling to contend with a strong black market and oversupply in its Canadian home market.
In addition to the lack of U.S. federal legalization, Aurora Cannabis has also gotten into hot water on news reports of its CEO’s salary. In July, it was disclosed that CEO Miguel Martin’s annual compensation rose 38% to nearly $7 million. At the same time, ACB stock cratered to trade at less than $1 per share. News of the pay increase caused outrage among Aurora Cannabis shareholders.
The company defended itself by pointing to the structural changes that have been made to the business in recent months. This includes eliminating more than $400 million in costs and cutting hundreds of jobs. Investors looking for a rock bottom cannabis security should check out ACB stock.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines