After recreational marijuana and medical weed sales jumped during the pandemic, the marijuana industry has faced several regulatory and economic challenges since last year. It is also facing a decline in demand.
With inflation still uncomfortably high and the Fed’s rate hikes sparking recession concerns, the marijuana industry could remain under pressure. Let’s explore if it would be wise to invest in marijuana stocks Tilray Brands, Inc. (TLRY), Canopy Growth Corporation (CGC), and Aurora Cannabis Inc. (ACB).
While nine states and Washington, D.C., have legalized recreational marijuana, 29 states have legalized medical weed. On the other hand, its been four years since Canada legalized marijuana, causing the industry to boom. However, the industry is now plagued with oversupply challenges. The oversupply has impacted wholesale and retail prices.
Moreover, persistent inflation and higher costs for fertilizer, raw materials, and packaging have kept demand under pressure. The industry also faces challenges from illegal suppliers, taxes, and regulations.
An administrative review of marijuana is unlikely to be completed in 2023. This could continue to keep marijuana stocks under pressure. Thus, it could be wise for investors to avoid fundamentally weak marijuana stocks TLRY, CGC, and ACB.
Tilray Brands, Inc. (TLRY)
Headquartered in Leamington, Canada, TLRY engages in the research, cultivation, production, marketing, and distribution of medical cannabis products worldwide. The company operates through four segments: Cannabis Business; Distribution Business; Beverage Alcohol Business; and Wellness Business.
In terms of the trailing-12-month gross profit margin, TLRY’s 20.59% is 63% lower than the 55.70% industry average. Its 2.95% trailing-12-month Capex/Sales is 36.3% lower than the 4.62% industry average. Likewise, its 0.11x trailing-12-month asset turnover ratio is 68% lower than the industry average of 0.33x.
For the fiscal second quarter that ended November 30, 2022, TLRY’s net revenue increased 7.1% year-over-year to $144.14 million. However, its total operating expenses increased 4.1% year-over-year to $91.92 million.
The company’s adjusted gross profit declined 7.9% from the prior-year quarter to $41.23 million. Its adjusted EBITDA declined 14.9% year-over-year to $11.71 million. Its adjusted net loss and adjusted loss per share came in at $35.31 million and $0.06, respectively.
Analysts expect TLRY’s EPS for the quarter ending February 28, 2023, to be negative. Its revenue for the current quarter is expected to decline 0.1% year-over-year to $151.69 million. The stock has lost 33.8% over the past nine months to close the last trading session at $2.82.
TLRY’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall rating of F, equating to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the D-rated Medical - Pharmaceuticals industry, it is ranked #172 out of 173 stocks. It has an F grade for Value, Momentum, and Sentiment and a D for Stability and Quality.
We have also given TLRY a grade for Growth. Get all TLRY ratings here.
Canopy Growth Corporation (CGC)
Headquartered in Smiths Falls, Canada, CGC produces, distributes, and sells cannabis and hemp-based products for recreational and medical purposes, primarily in Canada, the United States, and Germany. It operates through two segments, Global Cannabis; and Other Consumer Products.
In terms of the trailing-12-month CAPEX/Sales, CGC’s 1.42% is 69.4% lower than the 4.62% industry average. Its trailing-12-month EBITDA margin is negative, compared to the 3.73% industry average. Likewise, its 0.09x trailing-12-month asset turnover ratio is 71.8% lower than the industry average of 0.33x.
CGC’s net revenue for the fiscal third quarter that ended December 31, 2022, declined 28.2% year-over-year to CAD$101.21 million ($74.37 million). The company’s operating loss widened 2.5% year-over-year to CAD$153.76 million ($112.98 million).
Net loss attributable to CGC widened 140.1% year-over-year to CAD$261.58 million ($192.21 million). Additionally, its loss per share came in at CAD$0.54, representing a 92.9% increase from the prior-year quarter.
CGC’s EPS for the quarter ending March 31, 2023, is expected to remain negative. Its revenue for the current quarter is expected to decline 13.3% year-over-year to $76.19 million.
The company has a bleak earnings surprise history, missing the consensus EPS estimates in each of the trailing four quarters. The stock has declined 51% over the past nine months to close the last trading session at $2.33.
It is no surprise that CGC has an overall rating of F, which equates to a Strong Sell in our proprietary rating system. It is ranked #166 in the same industry. It has an F grade for Momentum, Stability, and Sentiment and a D for Value.
In total, we rate CGC on eight different levels. Beyond what we stated above, we have also given CGC a grade for Growth and Quality. Get all CGC ratings here.
Aurora Cannabis Inc. (ACB)
Headquartered in Edmonton, Canada, ACB produces, distributes, and sells medical and consumer cannabis and cannabis-derivative products in Canada and internationally. It is also involved in the distribution of wholesale medical cannabis in various international markets and in the distribution and sale of hemp-derived cannabidiol (CBD) products in the U.S. market.
In terms of the trailing-12-month asset turnover ratio, ACB’s 0.12x is 63.9% lower than the 0.33x industry average. Its trailing-12-month gross profit margin is negative compared to the 55.70% industry average. Likewise, its trailing-12-month EBITDA margin is negative, compared to the 3.73% industry average.
For the fiscal second quarter that ended December 31, 2022, ACB’s gross loss came in at CAD$16.17 million ($11.88 million), compared to a gross profit of CAD$5.58 million ($4.10 million) in the year-ago period.
Its loss from operations widened 28.3% year-over-year to CAD$71.60 million ($52.61 million). Net loss attributable to ACB and loss per share came in at CAD$65.39 million ($48.05 million) and $0.20, respectively.
ACB’s EPS for the quarter ending March 31, 2023, is expected to remain negative. The company has a bleak earnings surprise history, missing the consensus EPS estimates in each of the trailing four quarters. The stock fell 66.7% over the past nine months to close the last trading session at $0.86.
ACB’s POWR Ratings reflect bleak prospects. The stock has an overall rating of F, equating to a Strong Sell in our proprietary rating system. Within the Medical - Pharmaceuticals industry, it is ranked #165. The company has an F grade for Momentum and Sentiment and a D for Value, Stability, and Quality.
Click here to see ACB’s additional POWR Ratings (Growth).
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TLRY shares were trading at $2.81 per share on Monday morning, down $0.01 (-0.35%). Year-to-date, TLRY has gained 4.46%, versus a 4.41% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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