The cannabis revolution is gaining traction as the legalization of recreational and medical cannabis accelerates. So far, 19 states have allowed the cultivation and use of recreational cannabis. However, while most cannabis companies are well-positioned to profit from the expanding domestic and foreign marijuana markets, some appear to have lost momentum due to strong competition in the industry.

Furthermore, the cannabis industry’s prospects  appear to be uncertain owing to the Senate’s disagreement over the decriminalization of marijuana at the federal level. The Cannabis Administration and Opportunity Act, floated by Senate majority leader Chuck Schumer last month, which would remove marijuana from the Controlled Substances Act, does not yet have sufficient supporters in the Senate.

Amid this uncertainty, we think it would be wise to avoid fundamentally weak cannabis stocks Cronos Group Inc. (CRON) and GrowGeneration Corp. (GRWG). These two stocks have declined more than 10% in price over the past week.

Click here to check out our Cannabis Industry Report for 2021

Cronos Group Inc. (CRON)

CRON produces, manufactures, and markets cannabis and cannabis-derived products for the medicinal and adult-use markets. The Toronto, Canada-based concern markets and sells hemp-derived supplements and cosmetic products via e-commerce, retail, and hospitality partner channels under Lord Jones and Happy Dance brands.

In June, CRON and PharmaCann Inc., one of the largest vertically integrated cannabis companies in the United States, formulated a deal  in which a wholly owned subsidiary of CRON bought a fully diluted option to acquire an approximately 10.5% ownership stake in PharmaCann. Although this acquisition might boost CRON’s business operations, it could weigh heavily on its expenses in the coming months.

CRON’s operating expenses increased 39.8% year-over-year to $44.43 million in the second quarter, ended June 30, 2021. Its operating loss increased 73.5% year-over-year to $335.43 million, while its net cash used in operating activities increased 10% from the prior-year quarter to $86.20 million. Its cash and cash equivalents declined 19.4% from its year-ago value to $895.18 million.

The company’s EPS is expected to decline by 106.1% in the current year. CRON’s stock has declined 12.4% since August 10 and 49% over the past six months.

CRON’s POWR ratings are consistent with this bleak outlook. The company has an overall F rating, which translates to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

CRON has rated an F grade for Growth and Quality, and a D for Stability and Value. Within the C-rated Agriculture industry, it is ranked #31 of 31 stocks. To see additional POWR Ratings for Sentiment, and Momentum for CRON, click here.

GrowGeneration Corp. (GRWG)

Denver, Colo.-based GRWG owns and runs retail hydroponic and organic gardening businesses in the United States. It is primarily involved in the marketing and distribution of horticultural, organic, lighting, and hydroponics goods. In addition, the company caters to commercial and urban growers of specialty crops, such as organics, greens, and plant-based pharmaceuticals. It also  operates GrowGen.Pro, an online e-commerce store.

Last month, GRWG agreed to acquire HGS Hydro, the nation’s third-largest chain of hydroponic garden centers, with six locations in Michigan and a seventh opening in the fall of 2021. While this acquisition might help GRWG expand its market presence, it could lead to a significant cash outlay in the near term.

During the second quarter, ended June 30, 2021, GRWG’s operating expenses increased 197.5% year-over-year to $26.10 million. The company’s net cash from operating activities declined 62.9% from the prior-year quarter to $2.27 million. In addition, its cash and cash equivalents declined 62.3% from year-ago value to $67.16 million.

GRWG’s stock has declined 17.7% in price since August 10 and 50.6% over the past six months.

GRWG’s poor prospects are also apparent in its POWR Ratings. The stock has an overall F rating, which equates to Strong Sell in our proprietary rating system. It also has an F grade for Value and Stability, and a D for Quality.

Of the 65 stocks in the Home Improvements & Goods industry GRWG is ranked last. Click here to see the additional POWR Ratings for GRWG (Growth, Momentum, and Sentiment).

Click here to check out our Cannabis Industry Report for 2021

CRON shares were trading at $6.49 per share on Wednesday morning, up $0.12 (+1.88%). Year-to-date, CRON has declined -6.48%, versus a 19.44% 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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