Cannabis stocks are in a holding pattern right now — consider that the ETFMG Alternative Harvest ETF (NYSEARCA:MJ) has barely budged in the last month. Markets are waiting on the bipartisan legislation proposed in both the House and Senate to create protections for the states legalizing cannabis to play out. If the sector wins a favorable decision, it could start rallying again as it did for much of 2019. That is due to a boost in liquidity, as banks become permitted to offer services to companies in the sector.
What are the cannabis stocks that investors should watch, ahead of the government’s review?
Aurora Cannabis (NYSE:ACB) announced on Apr. 4 that it appointed Carey Squires as its executive vice president of Corporate Development and Strategy. Carey’s experience in capital markets signals that Aurora will seek global growth and partnerships with other firms. ACB shares are up over 70% year-to-date already. The stock could see profit-taking if markets weaken overall. But with such an event impossible to predict, investors are hoping for a favorable vote on the States bill to facilitate the financing of any big deals.
On Apr. 2, Aurora filed a preliminary prospectus that will allow the company to raise $750 million over a 25-month period.
On Apr. 5, the CEO of Constellation Brands (NYSE:STZ) told CNBC that Canopy Growth (NYSEQ:CGC) could make more than $1 billion in revenue by the end of its fiscal year. Constellation reasoned that Canopy can sell $5 billion to $6 billion worth of goods in Canada alone. Beverages and other edibles would add to the company’s addressable market potential.
Marijuana is illegal federally, but state governments have legalized it in some form in 33 states across the U.S. If more states legalize the substance, then Canopy, Constellation Brands and Aurora Cannabis could all, in turn, reward shareholders with good results.
On Mar. 25, Health Canada granted Canopy Growth a cultivation license for its facility in Fredericton, New Brunswick. The facility will start production of over 5,000kg of cannabis annually. Such positive benefits to the economy and job market are something for states to look forward to from cannabis legalization.
CannTrust (NYSE:CTST) could trade in a wide range after the company reported weak fourth-quarter results in the end of March. Revenue grew to 132% from last year to CAD $16.17 million. The company lost CAD $0.26 a share.
CannTrust is optimistic that its revenue growth will continue in 2019, thanks to additional capacity coming online. Its Phase 2 expansion, crop yield optimization and staff training will all drive output higher. By 2020, it estimates it will add between 100,000 kg to 200,000 kg of production. Looking ahead, the company will continue developing innovative products in anticipation of the expected legalization of the edibles market in Canada in late 2019.
Cronos Group (NASDAQ:CRON) has been one of the stocks to add to the “avoid list” due to its weak quarterly report. The company benefited from a CAD $2.4 billion Altria (NYSE:MO) investment, which closed in March 2019. The bad news is that the company’s average selling price fell from $6.43 in full-year 2017 to $5.74 for 2018. It blamed the falling ASP on an excise task. Operating expenses also ballooned from $9.3 million in full-year 2017 to $29.4 million.
Cronos has research and development activities that will take time before they pay off. Its big focus is on making sure that it has the technologies for leveraging on the rare cannabinoids and formulations to tailor them to devices. This requires the company collecting data to share with regulators so they are comfortable with it.
In the end, cannabis stocks have already staged a nice rally in 2019, which increases the risk of a pull-back if investors decide to book profits. Yet any positive developments on the legalization side of the equation could re-ignite another rally in the sector.
As of this writing, Chris Lau did not hold a position in any of the aforementioned securities.
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