Despite the legalization of cannabis in more states after the midterm elections last year, economic headwinds and industry-specific obstacles like overproduction made it a challenging year for the sector. Looking ahead this year, with a recession on the horizon, mounting layoffs and slow growth of the economy should affect this industry.
Moreover, while analysts are predicting that more states will legalize weed in 2023, this will also bring more stringent regulations and competition.
According to Politico, more than 20 of the largest publicly-traded cannabis companies lost about $550 million on revenues of nearly $4.5 billion in the first half of 2022.
In addition, consumer sales of recreational cannabis products fell in almost every Canadian province and major city in November 2022, with a 4.3% monthly decline in adult-use sales to CAD373.3 million ($277 million), marking the second straight monthly decline.
Amid the gloomy prospect of the industry, Canadian marijuana stocks with weak fundamentals Tilray Brands, Inc. (TLRY), Canopy Growth Corporation (CGC), Sundial Growers Inc. (SNDL), and Aurora Cannabis Inc. (ACB) might be best avoided now.
Tilray Brands, Inc. (TLRY)
Headquartered in Leamington, Canada, TLRY operates globally as a cannabis-lifestyle and consumer packaged goods company. It operates through four segments Cannabis Business; Distribution Business; Beverage Alcohol Business; and Wellness Business.
Its trailing 12-month gross profit margin of 20.59% is 62.9% lower than the 55.48% industry average. Its 2.95% trailing-12-month CAPEX/Sales is 36.5% lower than the 4.64% industry average.
TLRY’s net revenue decreased 7.1% year-over-year to $144.14 million in the fiscal 2023 second quarter, which ended November 30, 2022. Its total operating expenses increased 4.1% year-over-year to $91.92 million. Furthermore, the company’s adjusted net loss and loss per share came in at $35.31 million and $0.06, respectively.
Analysts expect TLRY’s loss per share for the current fiscal year ending May 2023 to amount to $0.26. Its revenue for the ongoing year is expected to decline 3% year-over-year to $609.83 million. The company has failed to surpass its consensus EPS estimates in three of the trailing four quarters.
Over the past nine months, the stock has lost 43.8% to close the last trading session at $3.08.
TLRY’s POWR Ratings reflect this bleak outlook. The stock has an overall rating of F, which translates to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It also has an F grade for Value, Momentum, and Sentiment and a D for Stability. In the D-rated Medical – Pharmaceuticals industry, it is ranked #169 of 170 stocks.
Click here to see the additional POWR Ratings for TLRY (Growth and Quality).
Canopy Growth Corporation (CGC)
CGC, headquartered in Smith Falls, Canada, produces, distributes, and sells cannabis and hemp-based products for recreational and medical purposes. The company primarily operates in Canada, the United States, and Germany through two segments: Global Cannabis and Other Consumer Products.
On January 13, CGC announced that it had closed its previously announced transactions with OEG Retail Cannabis and 420 Investments Ltd. to divest its retail business across Canada, which includes the stores operating under the Tweed and Tokyo Smoke retail banners. This might impact the company’s operating revenues.
Its trailing-12-month asset turnover ratio of 0.10x is 71.6% lower than the 0.34x industry average, and its 1.11% trailing-12-month CAPEX/Sales is 76.1% lower than the 4.64% industry average.
For the fiscal 2023 second quarter that ended September 30, 2022, CGC’s net revenue decreased 10.3% year-over-year to CAD117.90 million ($88.35 million). Its net loss came in at CAD231.91 million ($173.79 million), up 1320.1% from the prior-year quarter, and its loss per share rose 1466.7% year-over-year to $0.47.
Street expects CGC’s revenue for the third quarter that ended December 2023 to decrease 20.6% year-over-year to $88.31 million. Its EPS will likely decline 36.7% year-over-year to negative $0.17 in the same quarter. It has failed to surpass the consensus EPS estimates in three of the trailing four quarters.
Shares of CGC have declined 60.9% over the past year to close the last trading session at $2.84.
CGC’s poor prospects are reflected in its overall POWR Rating of F, which translates to a Strong Sell in our proprietary rating system.
It also has a grade of F for Value, Momentum, and Sentiment and a D for Stability. CGC is ranked #164 in the same industry.
To access additional POWR Ratings for Growth and Quality for CGC, click here.
Sundial Growers Inc. (SNDL)
Headquartered in Calgary, Canada, SNDL is involved in the production, distribution, and sale of cannabis products in Canada. The company operates through Cannabis Operations and Retail Operations segments.
Its trailing-12-month gross profit margin is 19.07%, which is 65.6% lower than the 55.48% industry average. SNDL’s trailing-12-month CAPEX/Sales of 1.51% is 67.5% lower than the 4.64x industry average.
During the third quarter ending September 30, 2022, SNDL’s loss from operations rose 365% year-over-year to CAD88.54 million ($66.35 million). Its net loss came in at CAD98.84 million ($74.07 million) compared to a net income of CAD16.71 million ($12.52 million) in the same quarter the prior year. Its loss per share amounted to CAD0.41, compared to an EPS of CAD0.08 in the prior-year quarter.
The consensus EPS estimate of negative $0.64 represents a 17.3% year-over-year decline for the fiscal year 2022 that ended December 2022. It has failed to surpass the consensus EPS estimates in all the trailing four quarters.
The company’s shares have plunged 53.6% over the past nine months to close its last trading session at $2.18.
SNDL’s weak fundamentals are reflected in its POWR ratings. The stock has an overall D rating, which equates to a Sell in our proprietary rating system.
The stock also has an F grade for Momentum and Stability and a D for Sentiment. It is ranked #129 in the same quarter.
In addition to the POWR Ratings grades just highlighted, you can see the SNDL’s rating for Growth, Value, and Quality here.
Aurora Cannabis Inc. (ACB)
Headquartered in Edmonton, Canada, ACB produces, distributes, and sells cannabis and cannabis derivative products in Canada and internationally.
ACB’s 0.11x trailing-12-month asset turnover ratio is 67.1% lower than the 0.34x industry average. Its 0.08% trailing-12-month gross profit margin is 99.9% lower than the 55.48% industry average.
ACB’s total net revenue decreased 18% year-over-year to CAD49.26 million ($36.91 million) in the fiscal first quarter that ended September 30, 2022. Its cash used in operations, including working capital, rose 12% year-over-year to CAD20.12 million ($15.08 million) while adjusted EBITDA loss stood at CAD8.70 million ($6.52 million).
The company’s loss per share is expected to come in at $0.06 for the second quarter that ended December 2022. Its revenue estimate of $41.14 million represents a decline of 13.6% year-over-year in the same quarter. The company has failed to beat the consensus EPS estimates in any of the trailing four quarters.
The stock has declined 67.9% over the past nine months to close the last trading session at $0.97. It has declined 74.1% over the past year.
ACB’s gloomy outlook is reflected in its POWR Ratings. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system.
ACB has an F grade for Momentum and Sentiment and a D grade for Stability and Quality. It is ranked #167 in the same industry.
Click here for the additional POWR Ratings for Growth and Value for ACB.
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TLRY shares were trading at $3.14 per share on Tuesday morning, up $0.06 (+1.95%). Year-to-date, TLRY has gained 16.73%, versus a 5.19% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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