Although the U.S. cannabis industry has been gaining steam, in-part due to the hopes around a Republican-led legalization effort, the health risks associated with the use of marijuana and its strong addiction in adolescents could curb the industry’s growth. Despite marijuana becoming mainstream in many states, it remains a thorny issue because growing cannabis is a federal crime that transgresses the Controlled Substances Act.
Furthermore, with the laws around cannabis becoming gradually more favorable, more players are entering the cannabis space, making the industry highly competitive. This trend could negatively impact the market share of existing players.
Given this backdrop, we think it could be wise to steer clear of cannabis stocks Curaleaf Holdings, Inc. (CURLF), Canopy Growth Corporation (CGC), and GrowGeneration Corp. (GRWG). The companies possess weak fundamentals, and analysts have recently downgraded these stocks.
Curaleaf Holdings, Inc. (CURLF)
CURLF in Wakefield, Mass., is a vertically integrated cannabis operator in the United States that researches and develops ways to distribute cannabis products. The company operates in two segments–Cannabis Operations; and Non-Cannabis Operations. Through its Curaleaf Hemp brand, the company provides service across the medical and adult-use markets and the cannabidiol (CBD) category. CURLF has been downgraded recently from Buy to Hold by a Craig-Hallum analyst.
CURLF’s total revenue increased 73.9% year-over-year to $317.13 million in the third quarter, ended September 30, 2021. However, its net loss grew 563.8% from its year-ago value to $59.28 million. Its net loss attributable to Curaleaf Holdings, Inc. rose 509.2% from the prior-year quarter to $56.92 million. Also, the company’s operating income decreased 22.9% sequentially to $39.99 million.
CURLF’s EPS is estimated to decrease 197.8% in the current year. The company has failed to beat the consensus EPS estimates in each of the trailing four quarters. Also, the stock has lost 26.7% in price over the past six months and 37.4% over the past nine months.
CURLF’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. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
Also, the stock has an F grade for Growth, and a D grade for Value and Sentiment. We have also graded CURLF for Quality, Momentum, and Stability. Click here to access all CURLF’s ratings. CURLF is ranked #197 of the 200 stocks in the F-rated Medical – Pharmaceuticals industry.
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, and concentrates, and soft gel capsules. CGC has been recently downgraded by Cowen from an “outperform” rating to a “market perform” rating.
Last month, CGC entered agreements with the cannabis edible brands Mountain High Products, LLC, Wana Wellness, LLC and The Cima Group, LLC. CGC acquired both brands, which are collectively known as Wana. Although CGC could strengthen its growth in the U.S. market with this acquisition, the move could weigh heavily on its expenses in the coming months.
During its fiscal second quarter, ended September 30, 2021, CGC’s net revenue decreased 2.9% year-over-year to CAD131.37 million ($104.87 million). The company’s total operating expenses came in at CAD144.22 million ($115.12 million). Also, its operating loss amounted to CAD215.36 million ($171.91 million), and the company’s net loss came in at CAD16.33 million ($13.04 million) during the period.
CGC’s $480.6 million consensus revenue estimate for its fiscal period ending March 2022 represents a 4.5% decrease year-over-year. The company’s EPS is expected to decrease 296.2% next year. Furthermore, its stock has declined 62.1% in price over the past nine months and 37.5% over the past year.
CGC’s poor prospects are also apparent in its POWR Ratings. The stock has an overall D rating, which equates to a Sell in our proprietary rating system. Also, the stock has an F grade for Value, and a D grade for Momentum and Quality.
In addition to the POWR Rating grades I have just highlighted, one can see CGC’s ratings for Growth, Stability, and Sentiment here. CGC is ranked #184 in the Medical – Pharmaceuticals industry.
GrowGeneration Corp. (GRWG)
Retail hydroponic and organic gardening store operator GRWG engages in the marketing and distributing horticultural, organics, lighting, and hydroponics products. The Denver, Colo.-based company operates a chain of 59 stores and GrowGen.Pro, an online e-commerce store. GRWG sells its products to commercial and urban cultivators growing specialty crops. GRWG has been recently downgraded by the Stifel analyst W. Andrew Carter.
During the third quarter, ended September 30, 2021, the company’s sales increased 110.9% year-over-year to $116 million. Its total operating expenses grew 210.4% from its year-ago value to $29.39 million. Its cash and cash equivalents decreased 64.6% to $63.04 million as of September 30, 2021, from $177.91 million as of December 31, 2020. Also, the company’s income from operations declined 8.4% from the prior-year quarter to $4.68 million.
GRWG has failed to surpass the consensus EPS in three of the trailing four quarters. The company’s EPS is estimated to decrease 33.3% in the current quarter and 60% next quarter. Its stock price has declined 40.8% over the past six months and 58.5% over the past nine months.
It is no surprise that GRWG has an overall F rating, which equates to a Strong Sell in our POWR Ratings system. Also, the stock has an F grade for Value, Quality, and Stability.
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CURLF shares were unchanged in premarket trading Tuesday. Year-to-date, CURLF has declined -16.22%, versus a 26.30% 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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