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Proprietary Data Insights Financial Pros’ Top Cannabis Stock Searches in the Last Month
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Fin Pros Still Buying This +250% Runner |
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Cannabis stocks caught fire last month as US officials offered some bullish news. Vice President Kamala Harris asked the DEA to quickly reclassify marijuana as a less dangerous substance. Senate majority leader Chuck Schumer circulated a petition to voters to support the SAFER Banking Act. Weeks later, we’re still seeing financial pros actively search through the sector. Their top stock, Canopy Growth Corp. (CGC), has risen more than 250% in less than a month. It’s one of the few cannabis companies to turn a gross profit. But does that make it investable? Canopy Growth’s Business Based out of Canada, where marijuana consumption is legal, Canopy Growth sells cannabis and hemp-based products for medical and recreational use in accordance with local laws. Its revenues break down along usage and geography:
Canopy’s latest earnings marked its third consecutive quarter and trailing twelve months of gross profits. This comes on the heels of a cost-cutting initiative meant to save $160 million CAD by the middle of February. That led to a 60% reduction in its workforce, the closure of multiple production facilities, and a complete divestiture of the Canadian retail footprint. Cannabis oversupply has kept prices suppressed, hurting margins.
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Financials
Source: Stock Analysis Canopy’s revenues fell in the last twelve months as it divested from its retail cannabis channel, which had accounted for over $36 million in sales. Overall, the company faces structural challenges, with upsidedown gross margins and high operating costs. However, this is an industry-wide problem. And with a negative operating cash flow of more than $300 million annually, Canopy’s $142 million in cash on its balance sheet will only take it through about half of the year. Afterward, we expect them to either increase debt or tender more shares. Valuation
Source: Seeking Alpha The overall picture for the industry isn’t pretty. None of the competitors generate cash from operations. Only Aurora Cannabis (ACB) turns a paper profit, and barely. However, all the cannabis stocks aren’t too expensive based on the price-to-sales ratio save Cronos (CRON). Growth
Source: Seeking Alpha Canopy Growth and Aurora are the only ones who saw sales decliens last year. However, Canopy is the only one that expects that to continue next year. In fact, it has the lowest CAGR over the last 5-year period. Profitability
Source: Seeking Alpha Profit-wise, Canopy is one of the worst. It runs the lowest gross margins, with every other margin being negative. In fact, only Aurora Cannabis has positive net income.
Our Opinion 0/10 These stocks are not good investments. Even if regulations weren’t a problem, the companies are fundamentally flawed. At minimum, they should be able to generate positive cash flow within their local country. |
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