Given the uncertainties surrounding legalization and the presence of illicit practices in the cannabis industry, let’s look into the fundamentals of Tilray Brands, Inc. (TLRY) and Canopy Growth Corporation (CGC) to determine if it’s worth adding them to one’s portfolio this year.
The Canadian cannabis industry, one of the world’s largest legal cannabis markets, is experiencing turbulence. A government-appointed expert panel found that despite the growth of the legal cannabis market in the country, companies operating in this space are struggling to realize profits.
Simultaneously, in the United States, nationwide legalization of cannabis is still far away. This year, a federal review proposed a less strict classification for marijuana in the U.S. under federal drug laws, recognizing its medical uses. President Biden's directive to potentially reschedule marijuana from Schedule I to Schedule III signals a regulatory shift, citing a lower potential for abuse and accepted medical use.
Moreover, as cannabis is Federally illegal, it is difficult to move the product around across state lines, creating supply and demand imbalances. On top of it, illicit markets for the substance also pose a serious hurdle.
Considering these unfavorable trends, let’s take a look at the fundamentals of the two cannabis stocks, starting with the worst from the investment point of view.
Stock #2: Tilray Brands, Inc. (TLRY)
Headquartered in Leamington, Canada, TLRY engages in the research, cultivation, processing, and distribution of medical cannabis products internationally. The company operates through four segments: Cannabis Business, Distribution Business, Beverage Alcohol Business, and Wellness Business.
In terms of the trailing-12-month gross profit margin, TLRY’s 22.72% is 60.1% lower than the 56.97% industry average. Likewise, its 3.32% trailing-12-month Capex/Sales is 22.2% lower than the 4.27% industry average. Additionally, its 0.14x trailing-12-month asset turnover ratio is 63.3% lower than the 0.39x industry average.
For the second quarter that ended November 30, 2023, TLRY’s net revenues came in at $193.77 million. Its operating loss narrowed 19.4% year-over-year to $34.36 million. The company incurred a net loss of $46.18 million, or $0.07 per share, respectively. Furthermore, its adjusted EBITDA decreased 8.4% over the prior-year quarter to $10.09 million.
For the quarter ending December 31, 2023, TLRY’s EPS is expected to remain negative. Over the past year, the stock has declined 34.1% to close the last trading session at $2.09.
TLRY’s weak fundamentals are reflected in its POWR Ratings. It has an overall rating of F, which translates to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an F grade for Sentiment and a D for Value, Stability, and Quality. It is ranked #147 out of 161 stocks in the Medical - Pharmaceuticals industry. To see TLRY’s Growth and Momentum ratings, click here.
Stock #1: Canopy Growth Corporation (CGC)
Headquartered in Smiths Falls, Canada, CGC engages in the production, distribution, and sale of cannabis and hemp-based products for recreational and medical purposes, primarily in Canada, the United States, and Germany. It operates through two segments: Global Cannabis and Other Consumer Products.
On January 9, 2024, CGC announced a $30 million private placement offering of 6,993,007 units at a price per unit of $4.29. The purpose is to enhance liquidity, with proceeds intended for debt reduction, working capital, and general corporate purposes.
On November 29, 2023, CGC entered into a partnership with Marquee Brands to develop Martha Stewart CBD's new line of need-based gummies, including Sleep CBD, Chill CBD, and Extra Strength CBD gummies. This partnership combines Martha Stewart's flavor profiles with CGC’s consumer insights and industry innovation.
In terms of the trailing-12-month Capex/Sales, CGC’s 2.05% is 52.1% lower than the 4.27% industry average. Likewise, its 4.76% trailing-12-month gross profit margin is 91.6% lower than the 56.97% industry. Also, its 0.15x trailing-12-month asset turnover ratio is 62.7% lower than the 0.39x industry average.
CGC’s net revenues for the second quarter of fiscal 2024 decreased 20.8% year-over-year to CAD69.60 million ($51.63 million). However, its operating loss stood at CAD7.01 million ($5.20 million). Moreover, the company’s net loss attributable to CGC widened 6.1% over the prior-year quarter to CAD310.02 million ($229.97 million). Also, its loss per share came in at CAD0.43.
Street expects CGC’s EPS for the quarter ended December 30, 2023, to remain negative, and its revenue for the same quarter is expected to decrease 24.4% year-over-year to $56.88 million. It failed to surpass the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has declined 81.6% to close the last trading session at $4.80.
CGC’s POWR Ratings reflect its bleak outlook. The stock has an overall rating of D, equating to a Sell in our proprietary rating system.
It has an F grade for Momentum and Stability and a D for Sentiment and Quality. It is ranked #144 in the same industry. Beyond what we stated above, we also have given CGC grades for Growth and Value. Get all CGC ratings here.
What To Do Next?
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CGC shares were trading at $4.70 per share on Wednesday morning, down $0.10 (-2.08%). Year-to-date, CGC has declined -8.02%, versus a -0.57% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
Cannabis Check: Should You Consider Canopy Growth (CGC) and Tilray (TLRY) for Your 2024 Portfolio? StockNews.com
