The cannabis industry was struggling considerably even before the coronavirus pandemic hit the stock markets, with many hot pot stocks recording significant declines from record highs. While the current situation may be difficult for many companies in the industry, it should be noted that in the long-term, there is still potential for major growth. The cannabis industry is still at a nascent stage, and over the past year or so, it has suffered from numerous structural issues. Oversupply of cannabis, slow rollout of stores, and the continued presence of the black market are some of the factors behind the poor performance.
That being said, it is also necessary to keep in mind that despite the potential for long-term growth, many companies are going to fall by the wayside over the coming year. It is important for investors to not only chase after the hot pot stocks but to also look for companies that have a business model that can eventually generate steady profits. There are many pot companies that have developed solid business models and could eventually go on to become major players in the industry. Here is a look at three such hot pot stocks.
One of the more interesting hot pot stocks at this point in time is Village Farms International. Over the past month, VFF stock has gained 40%, emerging as one of the pot stocks to watch out for.
Village Farms announced its financial results for the fourth quarter towards the end of March, which disappointed many shareholders. The losses soared to C$7.2 million, which worked out to 14 cents a share. In the prior-year period, the losses had come in at C$2.4 million. The company earned $1.8 million in revenue from its Pure Sunfarms cannabis joint venture. Product sales for the quarter came in at $33.06 million, which reflects a significant drop of 15% from the year-ago period.
However, there was one major development for Village Farms in the fourth quarter. Its dispute with its joint venture partners was resolved, and eventually, the company raised its ownership of Pure Sunfarms to 59%. That could be one of the major reasons behind the rally in the stock over the past months.
Over the past few quarters, Organigram Holdings has emerged as one of the hot pot stocks in the market. Considering the fact that it runs one of the more efficient operations, this does not come as a surprise. That being said, investors need to take a closer look at the recent events.
This week, Organigram announced that it is going to go for an at market price share sale program. Organigram expects to raise $34.5 million (C$49 million) from the share sale, and if it uses full authorization, then as many as 23 million shares could be sold in two exchanges. Data suggests that the company has 173 million outstanding shares in the United States alone. Organigram will use the proceeds for capital expenditure, debt management, and general corporate purposes. This sort of a share sale is common practice within the cannabis industry, since most of the companies are unprofitable and it may get difficult to raise fresh capital going forward.
Recently, the company released its financial results for the second fiscal quarter. Its net revenue stood at C$23.2 million, which is considerably lower than the C$26.9 million it generated in the previous quarter. This performance might worry some investors.
It is time for investors to perhaps take a closer look at HEXO stock. While it seemed like HEXO had caught a break when it signed the biggest wholesale cannabis supply agreement ever with Quebec, this still did not really help the stock, which is currently trading at $0.47 a share.
The company has been going through cash problems and has had to downsize its operations considerably. For instance, it is has halted operations at the Niagara facility, ultimately deciding to sell the facility altogether. The ownership of the facility was passed to HEXO after the company acquired Newstrike Brands.
HEOX has turned to issuing extra stock in order to tide over this cash crunch. Recently, it raised C$46 million by offering 60 million shares. The shares also have a warrant each, with an exercise price of C$0.96. Lastly, the company has still not been able to rectify the situation with the New York Stock Exchange, which had warned HEXO about its stock price trading below the required $1.00.
Will HEXO be able to turn things around?