One of the largest multi-state cannabis operators, Columbia Care Inc. (CCHWF - Get Rating) manufactures and supplies cannabis-based health and wellness solutions and derivative products. The company holds licenses in 15 jurisdictions in the United States and the European Union.

Shares of CCHWF have advanced 104.6% over the past year due to its rapidly expanding national and regional footprint and progress on key acquisitions in California and Colorado. However, its stock price has declined by 8% over the past month. Closing yesterday’s trading session at $5.65, CCHWF’s stock is trading 28.4% below its 52-week high of $7.89, which it hit on February 10.

While investors remain optimistic about the company’s strategic investments in the New York, New Jersey and Virginia markets, it hasn’t been able to generate much profit from its business so far. Furthermore, with increasing legalization of cannabis in the United States, the competition in this space is expected to intensify.

Click here to check out our new  Cannabis Industry Report for 2021

So, here is what we think could influence CCHWF’s performance in the near term:

Industry Headwinds

Last month, Congressional leaders reintroduced a bill to strike marijuana from the list of controlled substances, eliminate criminal penalties associated with the use of marijuana and invest in social equity components for impacted communities. The Marijuana Opportunity Reinvestment and Expungement Act of 2021 (MORE Act), although relaunched in the House of Representatives by Judiciary Committee Chairman Jerry Nadler, still faces an uncertain path to approval in the U.S. Senate.

Furthermore, as cannabis’ legalization prospects gain steam, more cannabis operators can now operate across state lines. This could dramatically change the marijuana landscape and significantly increase competition in the industry. As new entrants are rapidly expanding their businesses, the market share of dominant players like CCHWF could decline.

Positive Developments

In April, CCHWF acquired a 34-acre cultivation site in eastern Long Island, New York, thereby expanding its cultivation and production footprint by approximately 1 million square feet. As the demand for medical cannabis continues to surge in the New York market, this new facility will enable the company to scale and diversify its operations, and at the same time support its entry into the state’s adult-use market.

Last month, CCHWF announced the launch of its retail brand, Cannabist, with the goal of serving the growing cannabis market with high-quality products and seamless in-store experiences. The company has a list  of more than 80 new and existing locations that are expected to become Cannabist branded retail locations over the next 24 months.

Poor Profitability

CCHWF’s 42.4% trailing-12-month gross profit margin  is 23% lower than the 55.1% industry average. However, the company’s trailing-12-month net income margin and EBITDA margin are negative 44.3% and 11.6 %, respectively. Also, its trailing-12-month ROA, ROE, and ROTC are negative 11.3%, 29.1% and 5.9%, respectively.

Favorable Analyst Estimates

A  consensus EPS estimate for the current quarter, ending June 30, 2021, indicates an 81.8% rise year-over-year. CCHWF’s EPS is expected to increase 120% in the next quarter, 104.2% in 2021, and 1,450% next year. Analysts expect the company’s revenues to rise 182.7% in the current year, and 52.6% next year.

POWR Ratings Reflect Uncertainty

CCHWF has an overall C rating, which translates to Neutral in our 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. CCHWF has a D grade for Quality. This justifies the stock’s weak profitability.

It has a C grade for Stability, indicating that it is more volatile than  its peers.

Also, the company has a B Growth grade, which is in sync with analysts’ expectations about its revenue and earnings growth.

In addition to the grades we’ve highlighted, one can check out additional CCHWF ratings for Sentiment, Momentum and Value here. The stock is ranked #120 of 230 stocks in the F-rated Medical – Pharmaceuticals industry.

Click here to view the top-rated stocks in the Medical – Pharmaceuticals industry.

Click here to checkout our Healthcare Sector Report for 2021

Bottom Line

CCHWF’s stock has declined by  6.6% so far this year. While the company’s recent acquisition of one million square feet of floor  capacity in the state of New York could certainly strengthen its position in the fast-growing cannabis space, its negative profit margin continues to be a major concern for investors. Also, as the industry continues to grow by leaps and bounds and  competition in the sector intensifies, it could be difficult for CCHWF to retain its market share. So, we think investors should wait until the company is faring  better fundamentally before investing.

Click here to check out our new Cannabis Industry Report for 2021

CCHWF shares rose $0.44 (+7.79%) in premarket trading Wednesday. Year-to-date, CCHWF has declined -6.61%, versus a 13.32% 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. More...

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