Canadian marijuana stocks have fallen from their February highs, after this year’s meme-stocks frenzy and bigger expectations of legalization measures in the U.S. fueled a rush into the sector. But after some bigger producers said coronavirus-related restrictions hurt sales, Ontario is taking steps to reopen. So is any pot stock a good buy now?
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Ontario, Canada’s most populous province, said it would begin lifting some restrictions on Friday, citing the vaccination rate and declines in case counts. The reopening measures include a 25% capacity limit at “essential” and other select retailers, and a 15% limit at retailers deemed non-essential. Pot shops in Ontario have had to rely more on delivery and pickup orders amid the restrictions this year.
Recent earnings from Aphria, Cronos Group (CRON) and Aurora Cannabis (ACB) have been disappointing. Aurora’s cannabis revenue slid, and the company lost far more than expected. So did Cronos Group. Aprhia’s results also missed expectations. Canopy Growth (CGC) lost more than expected, and its overall market share slipped.
The companies, to some degree, attributed the difficulties to coronavirus lockdowns in Canada. Provinces, which take in producers’ cannabis before sending it to retail stores, have tightened inventory.
However, even without the pandemic, the industry’s finances are, in many ways, still a mess. Profitability for most marijuana stocks has been hard to come by, after the industry over-expanded. Entry into the U.S. wouldn’t be easy or even guaranteed.
Elsewhere, Tilray (TLRY) and Aphria have merged. While consolidation has tightened up operations in other industries, some analysts questioned whether the deal was the right fit, as the industry still loses money after scaling back and the U.S. becomes a bigger focus for investors.
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Marijuana Stocks Fundamentals
IBD has mainly focused on the Canadian marijuana stocks, like Canopy Growth and Tilray, that trade on major U.S. exchanges. Other stocks, like Innovative Industrial Properties (IIPR) and Akerna (KERN), are based in the U.S. but don’t sell cannabis directly.
U.S.-based operators that do grow and sell cannabis, like Curaleaf (CURLF) and Green Thumb Industries (GBTIF), trade over the counter and in Canada.
When a stock dips or flattens out into a base after a charge higher, that can indicate that investors are taking a breather, shaking out bearish traders before more sustained support comes in. None of the marijuana stocks mentioned here are currently in bases.
Investors should also look for stocks with strong fundamentals, and that are breaking out of proper bases, IBD’s research shows.
Cronos Stock Chart
Cronos Group stock has a 31 Composite Rating and an EPS Rating of 9. Ratings for other marijuana stocks are also weak.
Cronos has a CBD business in the U.S., via the acquisition of Lord Jones. But the pandemic has kept people from physical stores that might sell the substance. Canadian pot companies have said U.S. retailers expressed reluctance to sell CBD products after the FDA began cracking down on some sales. The company’s Canadian market share remains small.
Canopy Growth Stock Chart
Of all the pure-play U.S.-listed marijuana stocks, Canopy Growth stock is worth the most, with a market value of around $9.6 billion. Canopy recently agreed to acquire Supreme Cannabis, even as it loses money and scales back elsewhere.
In February, after the company reported fiscal third-quarter results, CEO David Klein said Canopy could enter the U.S. legal market for THC products “during calendar 2021,” provided legislation allowed it.
Canopy has a deal in place to buy U.S. cannabis operator Acreage Holdings and has a CBD business here as well.
Canopy Growth stock has a 29 Composite Rating and a 18 EPS Rating.
Tilray Stock Chart
Tilray (TLRY) has merged with Aphria. Some marijuana stocks analysts have questioned the move, as well as the companies’ positioning in the U.S.
The stock has a Composite Rating of 40 and an EPS Rating of 30.
Aurora Cannabis Stock Chart
Aurora has said it would focus more on its premium products, while closing some facilities, after concerns about its cash. Some analysts have wondered whether Aurora should focus more on its Canadian medical business, which has been bigger than its recreational business.
The stock has a 20 Composite Rating and a 46 EPS Rating.
Innovative Industrial Properties Stock Chart
Innovative Industrial Properties buys properties from pot growers and then leases them back. IIPR stock is currently consolidating with a 222.18 entry.
Sales during the first quarter, reported in May, grew 103%. Earnings per share grew 46%.
The company has a 90 Composite Rating. Its EPS Rating is 94.
Marijuana Industry ETFs
Amid the volatility in marijuana stocks, one way to avoid stock-specific risk is via ETFs. The ETFMG Alternative Harvest (MJ) ETF is one such option. The AdvisorShares Pure Cannabis (YOLO) ETF and the Cambria Cannabis ETF (TOKE) are others.
Are Marijuana Stocks Buys Right Now?
So are marijuana stocks a good buy right now? Based on IBD’s research, no. None are currently in buy range.
Ideally, IBD’s research shows, investors would be better served looking for stocks with better profitability ratings and that have moved into buy zones.
Check out IBD Stock Lists and other IBD content to find dozens of the best stocks to buy or watch.
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