Cannabis Cultivator Bright Green Corporation (BGXX) in Fort Lauderdale, Fla., marked its NASDAQ debut on May 17, with its stock soaring nearly 216% in price. It is one of the few companies chosen by the U.S. government to cultivate, manufacture, and sell cannabis and cannabis-related products lawfully under federal and state regulations for research, pharmaceutical purposes, and affiliated export.

Also, the company’s shares advanced 91% a day after their listing. In a filing on May 13, the company stated that certain registered stockholders planned to offer 158.3 million shares of its stock. However, the stock plunged 65% in afternoon trading after two days of impressive gains. Closing its last trading session at $6.18, BGXX is currently trading near its all-time low of $5.60, which it hit on May 23, 2022.

Also, while views regarding cannabis are changing across the country owing to the product’s medicinal and wellness uses, partisan gridlock in Congress has virtually ensured that legislation to decriminalize marijuana will die in the United States Senate. This could further impact BGXX’s price performance in the near term.

Here’s what could shape BGXX’s performance in the near term:

Industry Headwinds

Last month, New Jersey took a step toward legalizing cannabis, and other states, including New York, Maryland, and Pennsylvania, are expected to follow suit. However, several jurisdictions that legalized recreational marijuana 10 years ago are now investigating the public health consequences of different new high-potency products amid concerns about a possible link to psychosis. “We are seeing a very significant rise in psychosis associated with the consumption of marijuana,” says Dr. Nora Volkow, head of the National Institute on Drug Abuse. Furthermore, the uncertainty surrounding the economy and the stock market has impacted investor sentiment. Investors’ diminishing interest in cannabis stocks is evident by the Global X Cannabis ETF’s (POTX) 40.9% decline year-to-date.

Poor Profitability

BGXX’s trailing-12-months cash from operations stood at negative $1.66 million, versus the $21.91 million industry average. Its trailing-12-months ROA, ROE, and ROC are negative 28.4%, 32.3%, and 19.2%, respectively.

POWR Ratings Reflect Bleak Outlook

BGXX has an overall D rating, which equates to a Sell in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. BGXX has a D grade for Quality, which is justified given the company’s poor profitability.

Among the 166 stocks in the F-rated Medical – Pharmaceuticals industry, BGXX is ranked #152.

Beyond what I’ve stated above, one can view BGXX ratings for Growth, Stability, Value, Momentum, and Sentiment here.

Click here to checkout our Healthcare Sector Report for 2022

Bottom Line

While the prognosis for the cannabis business is improving due to the products enormous demand to treat a wide range of conditions, the ambiguity surrounding federal cannabis legalization and growing worries about its health consequences might stymie the sector’s growth. In addition, rising competition in the space could further impact BGXX’s future growth prospects. Therefore, given the company’s poor profitability, we think the stock is best avoided now.

How Does Bright Green Corporation (BGXX) Stack Up Against its Peers?

While BGXX has an overall D rating, one might want to consider its industry peers, Merck & Co. Inc. (MRK), Novo Nordisk A/S (NVO), and Novartis AG (NVS), which have an overall A (Strong Buy) rating.

BGXX shares were trading at $6.29 per share on Tuesday morning, up $0.11 (+1.78%). Year-to-date, BGXX has declined -75.08%, versus a -12.79% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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