Thanks to increased legalization and rising demand, U.S. cannabis sales hit a record high $24 billion last year and are expected to reach $70 billion by 2028. The United States is expected to see legal sales of $30 billion in 2022 as cannabis companies prioritize risk management.
A growing demand for cannabis oil for therapeutic purposes from an aging population, and increasing consumer demand for innovative recreational cannabis products, should drive the industry’s growth.
However, not all cannabis companies are expected to benefit from the industry tailwinds. Canopy Growth Corporation (CGC), Cresco Labs Inc. (CRLBF), Aurora Cannabis Inc. (ACB), and Sundial Growers Inc. (SNDL) are currently trading at price levels that are inconsistent with their poor fundamentals. So, we think these overvalued stocks are best avoided now.
Canopy Growth Corporation (CGC)
Headquartered in Smiths Falls, Canada, CGC is a diversified cannabis company that operates through Global Cannabis and Other Consumer Products. The company, through its subsidiaries, produces and sells legal marijuana in the medical and recreational market. Its products include dried cannabis flowers, oils, concentrates, and soft gel capsules.
During its fiscal second quarter, ended Sept. 30, 2021, CGC’s net revenue decreased 2.9% year-over-year to CAD131.37 million ($104.19 million). The company’s total operating expenses came in at CAD144.22 million ($114.38 million). Also, its operating loss amounted to CAD215.36 million ($170.8 million), and the company’s net loss was CAD16.33 million ($12.95 million) during the period.
CGC’s EPS is expected to decrease 318.5% in its fiscal year. 2022. Also, its stock has declined 74.5% in price over the past nine months and 81.9% over the past year.
In terms of forward EV/Sales, CGC is currently trading at 5.91x, which is 24.4% higher than the 4.75X industry average. In addition, in terms of forward Price/Sales, CGC is currently trading at 6.40x, which is 17.7% higher than the 5.44x industry average.
It is no surprise that CGC has an overall F rating, which equates to a Strong Sell in our POWR Rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting. Also, the stock has an F grade for Value and Momentum.
Cresco Labs Inc. (CRLBF)
Chicago’s CRLBF is a cannabis operator in the United States that manufactures a suite of cannabis extracts and vape products. The company offers a wide range of products, including vape pens, capsules, edibles, sublingual oils, and other products. It operates under the brand names: Cresco, High Supply, Good News, Wonder Wellness Co., Remedi, Reserve, Flora Cal, Mindy’s Edibles, and Kiva.
For the third quarter, ended Sept. 30, 2021, CRLBF’s revenue increased 40.6% year-over-year to $215.48 million. However, the company’s total operating expenses grew 617.3% from its year-ago value to $372.34 million. Its loss from operations came in at $264.02 million, versus $24.94 million in income from operations in the prior-year quarter. Also, the company’s net loss amounted to $263.45 million, compared to a $25.58 million net loss in the third quarter of 2020.
CRLBF stock has declined 50.7% in price over the past nine months and 48.4% over the past year.
In terms of trailing-12-months Price/Book, CRLBF’s is currently trading at 3.05x, which is 24% higher than the 2.46x industry average.
CRLBF’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.
Also, the stock has an F grade for Momentum and Quality. We have also graded CRLBF for Growth, Value, Stability, and Sentiment. Click here to access all CRLBF’s ratings. CRLBF is ranked #179 in the Medical – Pharmaceuticals industry.
Aurora Cannabis Inc. (ACB)
Headquartered in Edmonton, Canada, ACB is a medical cannabis company that produces various strains of dried cannabis, cannabis oil and capsules, and topical kits for medical patients. The company markets its products under the Aurora, Aurora Drift, San Rafael 71, Daily Special, MedReleaf, CanniMed, Whistler, Reliva, and KG7 CBD brands. Also, ACB sells vaporizers and herb mills for using CanniMed herbal cannabis products.
During its fiscal first quarter, ended Sept. 30, 2021, ACB’s total net revenue decreased 11.1% year-over-year to CAD60.11 million ($47.3 million). The company’s revenue under the consumer cannabis segment declined 44.3% from its year-ago value to CAD19.12 million ($15.05 million). And its negative adjusted EBITDA came in at CAD12.1 million ($9.52 million) during the period.
In terms of forward Price/Cash Flow, ACB is currently trading at 26.31x, which is 55.1% higher than the 16.97x industry average.
ACB has declined 44.6% in price over the past six months and 55.7% over the past nine months.
ACB’s poor prospects are also apparent in its POWR Ratings. The stock has an overall F rating, which equates to a Strong Sell in our proprietary rating system. Also, the stock has an F grade for Momentum and a D grade for Quality.
In addition to the POWR Rating grades I have just highlighted, one can see ACB’s ratings for Growth, Value, Stability, and Sentiment here. ACB is ranked #182 in the Medical – Pharmaceuticals industry.
Sundial Growers Inc. (SNDL)
Incorporated in 2006, SNDL is a Calgary, Canada-based cannabis producer. The company produces and distributes adult-use cannabis products, including inhalable products, flowers, pre-rolls, and vapes. Also, SNDL, through its joint venture SunStream Bancorp Inc. offers growth capital and a strategic support platform in the global cannabis sector. The company markets its products under the Top Leaf, Sundial Cannabis, Palmetto, and Grasslands brands.
SNDL’s net revenue under the Cannabis segment for the third quarter, ended Sept. 30, 2021, increased 12% year-over-year to CAD14.4 million ($11.33 million). The company’s loss before tax under the cultivation and production segment came in at CAD10.18 million ($8.01 million).
SNDL has declined 45.1% in price over the past six months and 51.8% over the past nine months.
In terms of forward Price/Sales, SNDL is currently trading at 21.64x, which is 298.2% higher than the 5,44x industry average. In addition, in terms of forward EV/EBITDA, SNDL is currently trading at 27.2x, which is 89.6% higher than the 14.35x industry average.
It is no surprise that SNDL has an overall F rating, which equates to a Strong Sell in our POWR Rating system. Also, the stock has an F grade for Value and Stability.
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CGC shares were trading at $7.16 per share on Friday afternoon, up $0.31 (+4.53%). Year-to-date, CGC has declined -17.98%, versus a -8.12% rise in the benchmark S&P 500 index during the same period.
About the Author: Priyanka Mandal
Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research. More...
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