3 Underperforming Cannabis Stocks You Better Not Be Buying
In an August 2023 column, I wrote “With the chances of marijuana companies accessing the U.S. financial system higher than ever and cannabis stocks trading at lower valuations than ever before, now looks like an excellent time to seek out top-notch cannabis stocks to buy.” I also identified three cannabis companies with very attractive valuations and strong outlooks.
However, despite the fact that cannabis stocks in general had tumbled over 90% from their February 2021 peak as of October 2023, there are certainly still many cannabis stocks with overly high valuations and relatively unattractive prospects. These three cannabis stocks are expensive and do not have compelling, strong, positive catalysts on the horizon.
Cronos Group (CRON)
Source: Shutterstock
I believe that, in general, cannabis companies with large, healthy, marijuana-infused beverage businesses will be more successful than those that don’t have such offerings. That’s because adults have become very used to drinking alcohol while they are socializing. Meanwhile, smoking is no longer popular.
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Based on my research it appears that Cronos (NASDAQ:CRON) probably does not have a beverage business and at the very least is emphasizing edibles, vapes, and flowers much more than beverages.
Moreover, I’m not a big fan of its Canadian brand name, Spinach, since most consumers likely are not extremely fond of the vegetable and don’t find it exciting or cool.
CRON stock has a very high trailing price-sales ratio of 8.2, solidifying its status as one of the top cannabis stocks to sell.
Organigram (OGI)
Source: Ralf Liebhold / Shutterstock.com
Like Cronos, Organigram (NASDAQ:OGI) appears to, at the very least, not emphasize beverage-infused cannabis to a large extent. Indeed, the vast majority of its offerings appear to consist of different products that consumers can smoke, including ground cannabis, hash, hashish, and “handcrafted…flowers.”
As I suggested in the section on CRON, I believe that smoking is not very appealing to many if not most consumers in developed countries. Moreover, I think that cannabis companies that specialize in providing cannabis that must be smoked are the most vulnerable to competition from illegal dealers who can provide similar products at much lower costs.
Also noteworthy is that OGI’s top line tumbled 14% last quarter, versus the same period a year earlier to 32.79 million Canadian dollars, while its EBITDA, excluding certain items, dropped to -2.9 million Canadian dollars from 600,000 Canadian dollars in Q3 of 2022.
On a positive note, the company generated 18.3 million Canadian dollars from its international customers in the first nine months of its fiscal 2023, versus the 15.4 million Canadian dollars that it obtained from them for all of its FY22.
Still, the company has an elevated (for the cannabis sector) price-earnings ratio of 29, making its outlook unattractive.
Canopy Growth (CGC)
Source: Ralf Liebhold / Shutterstock
Canopy Growth (NASDAQ: CGC) does seem to have a robust beverage business as it offers multiple cannabis-infused beverages under its Deep Space brand. Specifically, CGC sells multiple cannabis-infused sodas.
Still, the company’s financial results have generally been dismal. For example, for its fiscal second quarter that ended in September, its revenue sank 20% versus the same period a year earlier to 70 million Canadian dollars. Although its net loss improved by 25% year-over-year, the company still reported a massive shortfall of 148 million Canadian dollars.
Also noteworthy is that CGC has a rather massive net debt of nearly $500 million as of Sept. 30, making it a prime candidate for bankruptcy, in my opinion.
Finally, the company’s enterprise value/revenue ratio of 2.25 is not cheap, given its unimpressive financial results and high debt.
On the date of publication, Larry Ramer did not hold (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.
Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been PLUG, XOM and solar stocks. You can reach him on Stocktwits at @larryramer.
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