Marijuana stocks have been generating solid momentum, capitalizing on the optimism over the potential for large-scale legalization or decriminalization of marijuana at the federal level. However, Democrats’ slim majority in Congress significantly reduces the chances of a full-scale, nationwide legalization. Also, it should be noted that while the Democrats’ control of Congress and the White House has so far been a boon for most pot producers, some are still struggling to stay afloat.
Although there’s little doubt that the likelihood of pot legalization has vastly improved, it’s still far from a lock. Moreover, there have been signs that cannabis stocks have gotten swept up in the reddit-driven surge that led GameStop to skyrocket this year. While these stocks gained significant attention from WallStreetBets Reddit army that contributed to GameStop’s epic short squeeze in January, their shares tumbled after the Reddit trade lost its momentum.
Against this backdrop, investors should avoid marijuana stocks with weak fundamentals and slower growth prospects at all cost. 4Front Ventures Corp. (FFNTF), Jushi Holdings Inc. (JUSHF) and Charlotte’s Web Holdings, Inc. (CWBHF) have had a difficult time growing their sales and their expenses are high. So, we believe that it’s better to avoid these names for now.
4Front Ventures Corp. (FFNTF)
Headquartered in Phoenix, Arizona, FFNTF operates licensed cannabis facilities in in the United States through Retail, Production, Pure Ratios, and Real Estate segments. The company also sells supplies to cannabis producers, as well as non-TCH products, imports equipment and supplies for resale.
In January, the company received approval from the Brookline, Massachusetts Planning Board to start the construction of a new mission-branded dispensary. It will serve adult-use customers and is on track to open in the second quarter of this year.
Last December, FFNTF completed the sale and leaseback of its cultivation and production facilities in Olympia, Washington and Georgetown (a neighborhood in Seattle). The transaction generated proceeds of $33 million, which was used to paydown outstanding senior secured debt obligation to affiliates of Gotham Green Partners.
FFNTF’s revenue has increased 25% sequentially to $12.41 million in the third quarter ended September 30, 2020. However, its loss from operations was $143,000, and its net loss was $3.95 million. Its interest expense rose 112.4% year-over-year to $5.79 million. FFNTF reported a loss per share of $0.01 over this period.
The stock has gained 368.1% over the past year but it is currently trading 15.2% below its 52-week high of $1.98, indicating short-term bearishness. Also, FFNTF’s forward EV/EBITDA currently stands at 202.63x, 1110.2% higher than the industry average 16.74x.
FFNTF’s POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of D, which translates to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
FFNTF has a C grade for Growth, D for Value, and an F for Quality. Of the 238-stocks in the F-rated Medical – Pharmaceuticals industry, it is ranked #183.
In addition to the POWR Ratings grades I’ve just highlighted, you can see the FFNTF ratings for Stability, Momentum, and Sentiment.
Jushi Holdings Inc. (JUSHF)
Founded in 2018, JUSHF is a cannabis and hemp company operating 11 retail locations under the BEYOND/HELLO retail brand. The company is engaged in the cultivation, processing, retail, and distribution of medical and adult-use products in various jurisdictions in Pennsylvania, Virginia, Ohio, Illinois, California, and Nevada.
Last month, JUSHF closed an offering of subordinate voting shares for total gross proceeds of C$74.75 million. The company intends to use the offering’s proceeds for potential strategic transactions, acquisitions, and business expansion opportunities.
JUSHF’s total operating expenses increased 16% year-over-year to $11.93 million in the third quarter ended September 30, 2020. Its Interest income declined 39.5% from the year-ago value to $69,000. The company reported a net loss of $29.43 million and a loss per share of $0.31 over this period.
The stock has gained 516.4% over the past year but it is currently trading 18.3% below its 52-week high of $9.06, indicating short-term bearishness. Moreover, the stock appears to be extremely overvalued. In terms of its trailing-12-month ev/sales, JUSHF is currently trading at 22.19x, 157.6% higher than the industry average 8.61x.
JUSHF’s weak prospects are apparent in its POWR Ratings also. The stock has an overall rating of D, equating to a Sell in our proprietary rating system. JUSHF also has a D grade for Stability and Quality, and an F for Value. In the same industry, the stock is ranked #217.
To see additional POWR Ratings for Growth, Sentiment, and Momentum for JUSHF, click here.
Charlotte’s Web Holdings, Inc. (CWBHF)
Based in Boulder, Colorado, CWBHF is engaged in the production and distribution of hemp-based cannabidiol wellness products in the United States. The company also distributes products such as capsules, gummies, topicals, and pet products through its ecommerce website, as well as distributors, and various brick and mortar retailers.
Last month, the company entered a long-term scientific collaboration with McLean Hospital, a Harvard Medical School affiliate to support research on hemp CBD efficacy. Also, CWBHF recently secured U.S. utility patents for its hemp genetics with superior cannabinoid expression.
CWBHF’s gross profit declined 17.5% year-over-year to $14.76 million in the third quarter ended September 30, 2020. The company reported an operating loss of $13.56 million and a net loss of $6.54 million. Its operating expenses increased 44.4% year-over-year to $28.31 million. CWBHF reported a loss per share of 40.05 over this period.
CWBHF failed to beat consensus EPS estimates in any of its trailing four quarters. The stock has declined 13.2% over the past year and is currently trading 36.3% below its 52-week high of $7.38, indicating short-term bearishness.
CWBHF’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall rating of D, which equates to Sell in our POWR Ratings system. CWBHF has a C grade for Growth and Stability, a D for Value, and an F for Quality. In the same industry, the stock is ranked #199.
In total, we rate CWBHF on eight different components. Beyond what we stated above we have also given CWBHF grades for Momentum, and Sentiment. Get all the CWBHF ratings here.
POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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FFNTF shares were trading at $1.75 per share on Monday afternoon, up $0.07 (+4.17%). Year-to-date, FFNTF has gained 92.31%, versus a 4.07% 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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