The U.S. cannabis market’s prospects look rosy amid anticipation of federal legalization under Biden’s presidency, and with that a potential substantial increase in the consumption of various cannabinoid products for medical and recreational use. The purchase of adult-use CBD products is expected to increase further because more consumers are seeking these products to deal with anxiety and boredom exacerbated by the COVID-19 pandemic.
Nevertheless, the cannabis industry will still have to clear many hurdles before seeing full-scale legalization. Although the likelihood of pot legalization has vastly improved, the U.S. economy is still tackling the pandemic, which could delay legalization plans. While most pot stocks are currently trading at high prices, driven by the legalization hype, not all the companies possess sufficiently strong fundamentals and cash positions to justify their valuations.
Against this backdrop, we think investors should avoid GrowGeneration Corp. (GRWG), Planet 13 Holdings Inc. (PLNHF), and Clever Leaves Holdings Inc. (CLVR). Their weak fundamentals and slower growth prospects don’t justify their current valuations.
GrowGeneration Corp. (GRWG)
Formerly known as Easylife Corp., GRWG operates organic gardening and retail hydroponic stores in the United States. The company distributes products such as lighting fixtures, nutrients, seeds and growing media, systems, trays, fans, filters, and other hydroponics products. It operates a chain of 51 stores and an online ecommerce store.
Last month, CRWG appointed Jeffrey Lasher, as Chief Financial Officer, effective April 15, following the retirement of Monty Lamirato. His extensive knowledge in multi-store and omni-channel operations could help drive GRWG’s growth as it expands its business strategically.
Also, last month, GRWG acquired Agron.io, a leading wholesale agriculture platform. The move will allow it to be a one-stop destination for GRWG’s growing commercial clients across the U.S. The strategic acquisition is expected to add to the company’s portfolio and offer a more customized experience to its commercial customers.
Although GRWG’s revenue has increased 143% year-over-year to $193 million in the year ended December 31, 2020, the company’s gross profit margin for full-year was 26.4%, compared to 27.6% in the same period last year. Its total operating expenses rose 108.7% year-over-year to $42.61 million, while its interest income declined 69.6% from its year-ago value to $43.93 thousand.
The stock has gained 25.1% over the past month, but it is currently trading 25.8% below its 52-week high of $67.75, indicating short-term bearishness. Also, GRWG has a stretched valuation. Its forward non-GAAP p/e currently stands at 103.16x, 434.5 % higher than the industry average 19.30x. In fact, its trailing-12-month ev/ebit of 321.99x is 1447.5% higher than the industry average of 20.81x.
GRWG’s POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, 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.
GRWG has a C grade for Sentiment, D for Stability, and an F for Value. Of the 64-stocks in the A-rated Home Improvement & Goods industry, it is ranked #64.
In addition to the POWR Ratings grades we’ve just highlighted, one can see the GRWG ratings for Quality, Momentum, and Growth.
Planet 13 Holdings Inc. (PLNHF)
Headquartered in Las Vegas, Nevada, cannabis retailer PLNHF produces, cultivates and markets cannabis and cannabis-infused products for the medical and retail cannabis markets in the United States. In addition, the company operates dispensaries and offers cardholder process navigation services, patient education services, express services, and home delivery services.
Last month, PLNHF reported that its unique in-house award-winning brands are now available in 53 dispensaries in Nevada, including the SuperStore. As the demand for its owned brands continues to rise, this development should provide better access to its customers across Nevada.
PLNHF’s total operating expenses increased 13.1% year-over-year to $8 million in the fourth quarter ended December 31, 2020. Its gross profit declined 2.5% from the year-ago value to $8.87 million. The company reported a net loss of $2.9 million and a loss per share of $0.02 over this period. It generated a total operating loss of $700,724.
Over the past month, PLNHF has gained 5.7%. However, it is currently trading 20% below its 52-week high of $8.67. Also, the stock appears to be extremely overvalued currently. In terms of its trailing-12-month ev/ebitda , PLNHF is currently trading at 202.92x, 871% higher than the industry average 20.90x.
PLNHF’s weak prospects are apparent in its POWR Ratings also. It has a D grade for Stability and Value, and a C for Quality. In the A-rated Tobacco industry, the stock is ranked #10 of 11 stocks.
To see additional POWR Ratings for Growth, Sentiment, and Momentum for PLNHF, click here.
Clever Leaves Holdings Inc. (CLVR)
Incorporated in 2017, CLVR produces, cultivates, and sells pharmaceutical-grade cannabinoids in the United States, Colombia, Germany, Portugal and Canada. The company is also involved in the manufacturing and selling of homeopathic and other natural remedies, wellness products, and nutraceuticals.
This month, the company entered a collaboration with Verdemed Holdings Inc. to supply EU-GMP and INVIMA certified products to the Brazilian and Peruvian markets. The partnership should expand CLVR’s presence in one of the largest South American markets and allow it to offer high-quality products to its growing user base.
During the fourth quarter, ended December 31, 2020, CLVR’s revenue increased 28% year-over-year to $3.3 million. However, it reported an operating loss of $7.32 million and a net loss of $11.62 million. It also reported an adjusted ebitda loss of $6.3 million over this period.
The stock has declined 10.4% over the past month and is currently trading 46.8% below its 52-week high of $19.46, indicating short-term bearishness.
CLVR’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall rating of F, which equates to a Strong Sell in our POWR Ratings system. CLVR has a C grade both for Growth and Momentum, a D for Value, and an F for Stability. In the C-rated Agriculture industry, the stock is ranked #29 of 30 stocks.
In total, we rate CLVR on eight different components. Beyond what we stated above we have also given CLVR grades for Quality, and Sentiment. Get all the CLVR ratings here.
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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GRWG shares were trading at $49.91 per share on Wednesday morning, down $0.34 (-0.68%). Year-to-date, GRWG has gained 24.09%, versus a 9.07% 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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