The cannabis industry continues to maintain steady momentum with the rising consumption of recreational and medical marijuana and growing support for decriminalizing marijuana at the federal level. With 36 states and four territories approving cannabis products for medical use, the changing legal landscape has boosted investors’ optimism about the industry.
Because Congress is perceived to be on the verge of decriminalizing marijuana at the federal level to unwind the decades-old war on weed, several pot stocks are gaining momentum. However, not all cannabis companies are poised to capitalize on the legalization of cannabis in the United States.
Given this backdrop, we think it could be wise to avoid cannabis stocks with weak growth prospects and bleak financials. Accordingly, we believe GrowGeneration Corp. (GRWG), 4Front Ventures Corp. (FFNTF), Charlotte's Web Holdings, Inc. (CWBHF), and Acreage Holdings, Inc. (ACRHF) are best avoided now.
Click here to check out our Cannabis Industry Report for 2021
GrowGeneration Corp. (GRWG)
Retail hydroponic and organic gardening store operator GRWG markets and distributes horticultural, organics, lighting, and hydroponics products. The Denver, Colo.-based company operates a chain of 59 stores and GrowGen.Pro, an online ecommerce store. GRWG sells its products to commercial and urban cultivators that grow specialty crops.
This month, GRWG acquired Los Angeles country’s Commercial Grow Supply, one of the largest hydroponic suppliers. While the acquisition may strengthen the company’s foothold in Southern California and help increase its customer base, it could require a significant cash outlay in the near term.
Also this month, GRWG acquired Washington-based Hoagtech Hydroponics, an indoor gardening and hydroponic equipment store. While this acquisition should expand its footprint in the Pacific Northwest, the transaction could negatively impact the company’s already weak cash balance in the coming months.
GRWG’s revenue increased 190% year-over-year to $125.9 million in the second quarter, ended June 30, 2021. However, the company’s total operating expenses increased 197.4% from the prior-year quarter to $26.1 million. And its store operations expenses rose 225.6% from their $12.62 million year-ago value for the quarter.
GRWG has failed to beat the consensus EPS estimates in three of the trailing four quarters. Its stock has lost 21.5% in price over the past month and 26.4% over the past three months.
GRWG’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, which equates to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Also, the stock has an F grade for Value, Stability, and Quality. We’ve also graded GRWG for Growth, Momentum, and Sentiment. Click here to access all GRWG’s ratings. GRWG is ranked last of the 64 stocks in the B-rated Home Improvement & Goods industry.
4Front Ventures Corp. (FFNTF)
FFNTF in Phoenix, Ariz., is a vertically integrated, multi-state cannabis operator in the United States. The company operates through THC Cannabis and CBD Wellness segments. FFNTF sells cannabis and CBD and operates five dispensaries under the brand name MISSION. In addition, it sells equipment, supplies, and intellectual property to cannabis producers and provides consulting services.
This month, FFNTF received a commencement letter from the Massachusetts Cannabis Control Commission that will allow the company to open its third dispensary in Massachusetts. Though FFNTF aims for high standards and low-cost cultivation and production methodologies in the new dispensary, it could weigh heavily on its expenses in the near term.
For the second quarter, ended June 30, 2021, FFNTF’s Systemwide Pro Forma revenue increased 85% year-over-year to $34.4 million. However, the company’s total operating expenses increased 47.7% from its year-ago value to $15.64 million. Its net loss increased 858.1% from the prior-year quarter to $6.22 million. Also, FFNTF’s loss per share came in at $0.01 for the quarter.
FFNTF’s stock has declined 3.5% in price over the past month and 18.4% over the past three months.
FFNTF’s poor prospects are also apparent in its POWR Ratings. The stock has an overall D rating, which equates to Sell in our proprietary rating system. Also, the stock has a D grade for Value, Momentum, and Quality.
In addition to the POWR Rating grades we’ve just highlighted, one can see FFNTF’s ratings for Growth, Stability, and Sentiment here. FFNTF is ranked #153 of 214 stocks in the F-rated Medical-Pharmaceuticals industry.
Click here to check out our Cannabis Industry Report for 2021
Charlotte's Web Holdings, Inc. (CWBHF)
Formerly known as Stanley Brothers, CWBHF produces and supplies hemp-based cannabidiol wellness products in the U.S. The company sells tinctures, capsules, gummies, topicals, and pet products under Charlotte’s Web brand through its websites, distributors, health practitioners, and brick-and-mortar retailers. CWBHF is headquartered in Boulder, Colo.
In the second quarter, ended June 30, 2021, although CWBH’s revenue increased 11.4% year-over-year to $24.2 million, its adjusted EBITDA came in at a negative $3.9 million. The company’s net loss and comprehensive loss amounted to $5.4 million, while its loss per share came in at $0.04 during this period. Furthermore, its cash at the end of the period declined 72.8% year-over-year to $27.1 million.
The company’s EPS is expected to remain negative for the current year and next year. CWBHF’s stock price has declined 21.2 % over the past month and 25.4% year-to-date.
It’s no surprise that CWBHF has an overall D rating, which equates to a Sell in our POWR Rating system. Also, the stock has a D grade for Growth, Momentum, and Quality.
Click here to see the additional POWR Ratings for CWBHF (Value, Stability, and Sentiment). CWBHF is ranked #177 in the Medical-Pharmaceuticals industry.
Acreage Holdings, Inc. (ACRHF)
Incorporated in 2014, New York City-based ACRHF is a principal investment firm and a vertically integrated, multi-state operator that specializes in cannabis. The Botanist, Superflux, and Prime are the brands through which the company works.
In April, ARCHF closed an agreement to divest 100% of its subsidiary Acreage Florida, Inc. to Red White and Bloom Brands, LLC. Although this move will strengthen its balance sheet, it could negatively impact its cost structure.
During the second quarter, ended June 30, 2021, the company’s revenue increased 63% year-over-year to $44.2 million. However, its net operating loss came in at $6.76 million, while its net loss stood at $3.31 million. The company’s net loss per share came in at $0.02 for the quarter.
ACRHF is expected to witness negative EPS in the fiscal period ending December 2021. Over the past month, ACRHF’s stock has lost 10.6% in price, and over the past three months the stock declined 37.9%.
ACRHF’s POWR Ratings reflect its poor prospects. The stock has an overall D rating, which equates to Sell in our POWR Ratings system. ACRHF has a D grade for Momentum and Quality, and a C for Growth. In the Medical-Pharmaceuticals industry, it is ranked #132.
Click here to see the additional POWR Ratings for ACRHF (Stability, Value, and Sentiment).
Click here to check out our Cannabis Industry Report for 2021
GRWG shares rose $0.09 (+0.29%) in premarket trading Monday. Year-to-date, GRWG has declined -21.95%, versus a 21.39% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.
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