Newer traders might not remember a time when cannabis stocks were few and far between and volumes were thin. Today, it’s much easier to find popular marijuana stocks to trade and perhaps you’ve seen the explosive price moves to the upside — along with the painful moves to the downside.
Many cannabis stocks have struggled lately, but the prospect of legalization in America and abroad continues to draw newcomers into the pot-stock trade. Still, the legalization issue remains complex; in an e-mail to InvestorPlace, Andrew Schnackenberg, professor of management at the University of Denver Daniels College of Business, notes that there are no easy answers surrounding the “when” and the “where” of cannabis decriminalization:
“This is a very difficult question to answer from a systematic scholarly perspective, as the laws are in a perpetual state of flux within many states and municipalities. Perhaps the biggest market for recreational use that has the potential to open up in 2020 is New York (and to a lesser extent, New Jersey). Investors should also strongly consider the headwinds being created for cannabis companies that are spilling over from emerging health risks associated with vaping.”
If you’re prepared to accept those headwinds, then the following selection of cannabis stocks could be ripe for the picking. I’ve chosen these three personal favorites because they have something — financial or otherwise — that puts them in a position to flourish regardless of whether decriminalization moves forward or not in 2020; in the final analysis, great companies can succeed even in the most challenging of regulatory environments.
Cannabis Stocks to Buy: Aphria (APHA)
Like the majority of cannabis contenders, Aphria (NYSE:APHA) stock has floundered since the summer of last year under the vaping controversy and the disappointment of Cannabis 2.0 (a catchall term for the commencement of Canadian sales of cannabis edibles, topicals, and vape products).
These are industry-wide issues, but Aphria has what many cannabis companies don’t: positive cash flow. With 600 million CAD on its balance sheet and just 490 million CAD in outstanding debt, Aphria is net positive — and a recent 100 million CAD cash infusion from a “mystery investor” certainly doesn’t hurt, either.
Not only that, but Aphria recently secured highly coveted GMP status in the European Union. This will allow the company to sell marijuana for medical purposes to pharmacies in cannabis-friendly and heavily populated countries like Germany. So if America drags its feet on legalization, the impact won’t be as bad for Aphria.
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As I’ve been known to do, I’m going to take a strictly contrarian position here in recommending Tilray (NASDAQ:TLRY) stock. I’ll be the first to admit that the share price went up too much in 2018 and wasn’t meant to be trading at $200, but I see it as an overreaction for the market to push it below $20 as there’s nothing so horrendous about this company that warrants such a downdraft.
Even the layoff of 10% of Tilray’s workforce, which many traders view as a sign of trouble, is a positive in my book. In fact, I would assert that more marijuana companies ought to consider similar cost-cutting measures: to quote Tilray’s CEO, Brendan Kennedy, “By reducing headcount and cost, Tilray will be better positioned to achieve profitability and be one of the clear winners in the cannabis industry, which will drive value for our investor and employee shareholders.”
Kennedy added, “Tilray restructured its global organization to meet the needs of the current industry environment and for continued growth in 2020 and beyond.” While I feel bad for those who lost their jobs, I respect the CEO’s willingness to reduce expenditures when times get tough for the cannabis market — remember, Tilray can always hire again when the market improves.
Canopy Growth (CGC)
Source: Jarretera / Shutterstock.com
I saved the best for last as the (comparatively) old standby, Canopy Growth (NYSE:CGC) stock, ought to be big enough to withstand any set of cannabis-market conditions. While it is true that governments in Quebec and Alberta have banned vape sales, Canopy CEO Mark Zekulin prepared for such hurdles back in September, saying, “I think the key part for us is to focus on the Canadian model… [W]e should be looking to where there’s regulations, there’s systems in place.”
The proof will be in the pudding, though (not necessarily cannabis-infused pudding, though I have seen it sold somewhere) as Canopy will report its earnings for 2020’s fiscal third quarter on Valentine’s Day. This event is highly anticipated as analysts collectively predict that Canopy will reveal a reduction in GAAP losses per diluted share – a key metric indicating, hopefully, a more positive-leaning cash flow.
The analyst community is also expecting an increase in Canopy’s quarterly revenues, something that hasn’t occurred since the fiscal fourth quarter of 2019, as well as an 11% year-over-year revenue increase. I the current cannabis-market environment, any positive surprise could push stock prices much higher – and if any company can beat expectations and lead the way out of this bear market, I’d say it’s the one and only Canopy Growth Corp.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
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