The cannabis landscape has been sprouting new opportunities of late because of increasing legalization in the United States and the growing acceptance of marijuana’s medical and recreational uses. Although marijuana usage has yet to be made legal at the federal level, state legalization momentum remains strong as more governors take steps to end marijuana prohibition in their states.
However, the cannabis space is highly competitive and not all players are in a good shape financially. In fact, now that Mexico has passed a bill to legalize recreational pot use—making it one of the world’s largest cannabis markets—the business climate for Canadian and U.S. pot operators could become even more competitive.
Against such a backdrop, the stocks of cannabis companies Canopy Growth Corporation (CGC), Tilray Inc. (TLRY), Sundial Growers Inc. (SNDL) and OrganiGram Holdings Inc. (OGI), which are expensive, and the companies financially inadequate, should be avoided now.
Click here to check out our new Cannabis Industry Report for 2021
Canopy Growth Corporation (CGC)
Formerly known as Tweed Marijuana Inc., CGC is a world-leading diversified cannabis and cannabinoid-based consumer products company. The company operates through Cannabis, Hemp and Other Consumer Products, and Canopy Rivers segments. Its products include high-quality dried flower, oil, soft gel capsule, infused beverage, edible, and topical formats, as well as vaporizer devices by Canopy Growth and industry-leader Storz & Bickel.
In April, CGC entered a distribution agreement with Southern Glazer’s Wine & Spirits, the world’s pre-eminent distributor of beverage alcohol, for its U.S. portfolio of CBD-infused beverages. Southern Glazer’s established network should help CGC to sell its CBD beverage products to eminent retailers and consumers in the U.S. market.
CGC’s forward EV/Sales currently stands at 21.60x, 215.4% higher than the 6.85x industry average. The company’s 22.50x forward Price/Sales is 206.3% higher than the 7.35x industry average.
Although CGC’s revenue grew by 23% year-over-year to CAD$152.53 million in the third quarter ended December 31, it reported a CAD$829.3 million net loss. Also, it generated a CAD$553.61 million operating loss for this period. Its gross margin came in at 16%, representing a decline of 1,500 basis points over the period. The stock has declined 32.7% over the past three months.
CGC’s POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, which translates to Sell in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CGC is also rated an F in Value, Sentiment, and Quality. Within the F-rated Medical – Pharmaceuticals industry, it is ranked #216 of 232 stocks.
To see additional POWR Ratings for Growth, Momentum, and Stability for CGC, Click here.
Tilray, Inc. (TLRY)
Incorporated in 2018 and based in Canada, TLRY is involved in research, cultivation, processing and distribution of medical cannabis. It is the first GMP-certified medical cannabis producer to supply cannabis flower and extract products to patients, physicians, pharmacies, hospitals, governments and researchers on five continents.
This month, TLRY and Aphria Inc. closed their previously announced business combination to establish the leading cannabis-focused consumer packaged goods company with the largest global footprint in the cannabis industry.
The company’s forward EV/Sales currently stands at 11.29x, 64.9% higher than the 6.85x industry average. Its198.11x forward EV/EBITDA is 1,049.2% higher than the 17.24x industry average.
In its fiscal fourth quarter, ended December 31, TLRY reported a $3.0 million net loss. The company’s HEMP segment revenue declined 18% year-over-year to $15.33 million. Its gross margin for Hemp decreased to 34% from 35% in the fourth quarter of 2019. Also, TLRY’s loss per share came in at $0.02 over this period.
Analysts expect TLRY’s EPS to decline at the rate of 4.2% per annum over the next five years. The company’s stock has declined 16.8% over the past one month.
TLRY’s poor prospects are also apparent in its POWR Ratings. The stock has an overall rating of D, which equates to Sell in our proprietary rating system.
The stock also has an F grade for Stability, and a D grade for Value, Sentiment, and Quality. Click here to see the additional POWR Ratings for TLRY (Growth and Momentum).
TLRY is ranked #211 of 232 stocks in the same industry.
Sundial Growers Inc. (SNDL)
Headquartered in Calgary, Canada, SNDL produces and markets cannabis products for the adult-use market in Canada. It produces and distributes inhalable products, such as flower, pre-rolls, and vapes. The company offers its products under the brand names Top Leaf, Sundial Cannabis, Palmetto, and Grasslands.
In April, SNDL increased its commitment to SunStream Bancorp Inc. to $188 million from its previously announced commitment of $100 million. The joint venture should leverage a strategic financial and operational partnership to enhance risk-return opportunities in the cannabis industry and to provide exposure to a portfolio of attractive debt, equity and hybrid investments.
The company’s 24.94x forward EV/Sales is 264.1% higher than the 6.85x industry average. Its 25.71x forward Price/Sales is 250.0% higher than the 7.35x industry average.
SNDL reported a net revenue of $13.85 million for the fourth quarter, ended December 31, representing a 6% year-over-year decline over the period. The company’s net loss came in at $64.14 million, while its EBITDA came in at negative $5.63 million over this period.
SNDL is expected to witness a 49.7% revenue decline for the current quarter ended March 2021 and 17.4% for the next quarter. Also, the company could not beat consensus EPS estimates in any of the trailing four quarters. Over the past month, SNDL’s stock has declined 24.3%.
SNDL’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall F rating , which equates to Strong Sell in our POWR Ratings system. SNDL has an F grade for Value, Stability, and Sentiment. Among the 232 stocks in the same industry, it is ranked #227.
We have also graded SNDL for Growth, Momentum, and Quality. Click here to see them.
OrganiGram Holdings Inc. (OGI)
Founded in 2013, Organigram is a producer and seller of cannabis and cannabis-derived products, operating under the Edison Reserve, Edison Cannabis Co., ANKR Organics, and Trailblazer brands. It is focused on producing high-quality, indoor-grown cannabis for patients and adult recreational consumers in Canada, along with developing international business partnerships to extend the company’s global footprint.
Last month, as part of the continued expansion of its Edison Cannabis Co. line of products, OGI launched two new Edison dried flower strains that include the potent GMO Cookies and legendary citrus diesel MAC-1 that are excellent examples of diverse and high-quality genetics.
OGI’s forward EV/Sales currently stands at 13.19x, 92.5% higher than the 6.85x industry average. The company’s 13.29x forward Price/Sales is 81% higher than the 7.35x industry average.
In the second fiscal quarter ended February 28, 2021, OGI reported net revenue of CAD$14.64 million, representing a 37% year-over-year decline, while its gross margin represented a 252% decline from its year-ago value to a negative CAD$17.20 million. The company reported a net loss of CAD$66.39 million over this period.
Analysts expected OGI’s revenue for the fiscal period ending August 2021 to be $59.49 million, representing an 11% year-over-year decline. OGI’s stock has declined 22.1% over the past one month.
OGI’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, which translates to Strong Sell in our proprietary ratings system. The company is also rated an F in Value, Sentiment, and Stability. Within the same industry, it is ranked #231 of 232 stocks.
In addition to the grades we’ve highlighted, one can check out additional OGI ratings for Growth, Quality, and Momentum here.
Click here to check out our new Cannabis Industry Report for 2021
CGC shares were trading at $25.60 per share on Monday afternoon, down $1.35 (-5.01%). Year-to-date, CGC has gained 3.90%, versus a 12.39% rise in the benchmark S&P 500 index during the same period.
About the Author: Samiksha Agarwal
Samiksha Agarwal has always had a keen interest in financial markets. This has led her to a career as a financial journalist. Through her extensive knowledge of fundamental analysis, her goal is to help investors identify untapped investment opportunities in the stock market. More…
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