The coronavirus pandemic has not been a particularly great time for most stocks, and in this regard, popular cannabis stocks are no exceptions either. Many pot stocks have recorded steep declines over the past months, and it has become abundantly clear that not all companies will end up as winners.
Some stocks have lost as much as 95% in recent months, and even then, there are certain popular cannabis stocks that are a bit overvalued. However, some cannabis stocks are still popular with investors, so it may be important to take a closer look at some of those to figure out why.
Here is a look at three popular cannabis stocks.
There was a time when Organigram Holdings was regarded as one of the most efficient operators in the industry, and naturally, Organigram stock eventually became one of the more popular cannabis stocks on the market. However, it is necessary to keep in mind that companies need to generate meaningful growth as well if they are to be taken seriously, and in that regard, Organigram has been found wanting. In the fiscal second quarter, the company failed to generate any growth, and its losses widened as well.
While its adult-use sales rose 19% sequentially by C$2.96, wholesale sales dropped 40% by C$3.65. It is important to keep in mind that before Q1 2020, it was easier for cannabis companies to generate year-on-year growth. Cannabis was not yet legal in that time, so revenues were negligible, if any. However, the industry has grown significantly, and now there is a lot of competition among different players trying to grab a slice of the market.
For instance, erstwhile cannabis behemoth Aurora Cannabis has stated that it expects zero or negligible growth in the next quarter, which indicates the current state of the industry at large. Organigram will also need to pull up OGI stock if it is to generate growth.
Speaking of Aurora…
A cannabis company that has spectacularly fallen from grace in recent times is Aurora Cannabis. Aurora stock has been beaten down considerably from being one of the more popular stocks in the sector; it is now one of the worst performers.
In 2019, the company was all set to emerge as the biggest cannabis producer in Canada and also seemed to be on track to sign many international supply agreements. As of this Monday, the stock was trading at only $0.75 a share. However, at a closer look, it becomes clear that even at that level, the stock may not actually be cheap.
The company has a market cap of $1 billion, and it has been diluting its stock in order to raise more cash. The number of outstanding shares has ballooned to 1.31 billion from only 16 million in a matter of six years. On top of that, Aurora is also facing an acute cash crunch, and recently, it raised $350 million in an at-the-market offering of its shares.
In addition to that, the company’s goodwill totals C$2.41 billion after the write-down of the C$762 million impairment charge in the second quarter. The company also halted construction of two of its projects in 2019. All things considered, at this state, Aurora’s current stock price is hard to justify.
Cronos Group is one of the popular cannabis stocks that might be on investor radars owing to its recent fall. The company ended 2019 with a cash balance of $1.5 billion, and the backing of tobacco giant Altria Group (NYSE:MO) is also a factor in its favor. While those are significant advantages, investors need to take a closer look at the company’s operations as well.
At this point, investors have paid $730 million for the company. In contrast, Cronos only generated $23.8 million worth of net sales last year. The losses amounted to $17.9 million. Peace Naturals is the only entity that gives Cronos a steady supply of product, and even that amounts to only 40,000 kilos a year. The company may have a lot of cash, and that might cushion the risks somewhat, but Cronos stock is still overvalued at a valuation of $720 million.