Canadian marijuana stocks have fallen from their February highs, after this year’s meme-stocks frenzy and bigger expectations of legalization in the U.S. fueled a rush into the sector. So is any pot stock a good buy now?
Recently, Canadian pot plays Canopy Growth (CGC), Tilray (TLRY) and Cronos Group (CRON) reported earnings. The companies reported positive income, but the way they got there was a bit complicated.
Some Canadian cannabis producers said coronavirus-related restrictions hurt quarterly sales. Ontario’s plans to fully reopen remain in flux.
Yet even without the pandemic, the Canadian industry’s finances are, in many ways, still a mess. Profitability for most Canadian marijuana stocks has been hard to come by, after the industry over-expanded, overproduced and burned through money. Entry into the U.S. wouldn’t be easy or even guaranteed.
Below, we take a look at marijuana stocks’ chart patterns.
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Marijuana Stocks Fundamentals
IBD has mainly focused on the Canadian marijuana stocks, like Canopy Growth and Tilray, that trade on major U.S. exchanges. Other stocks, like Innovative Industrial Properties (IIPR) and Akerna (KERN), are based in the U.S. and trade on those exchanges, but don’t sell cannabis directly.
U.S.-based operators that do grow and sell cannabis in legal states, like Curaleaf (CURLF) and Green Thumb Industries (GBTIF), trade over the counter and in Canada.
Investors should look for stocks with strong fundamentals, and that are breaking out of proper bases, IBD’s research shows.
Cronos Stock Chart
Cronos Group stock has a 9 Composite Rating and an EPS Rating of 37. Ratings for other marijuana stocks are also weak.
Cronos’ Canadian market share remains small, compared to the likes of Tilray, Canopy and the other Canadian names that trade on U.S. exchanges.
Canopy Growth Stock Chart
Of all the Canadian marijuana stocks, Canopy Growth stock is worth the most, with a market value of around $5.9 billion.
In February, after the company reported fiscal third-quarter results, CEO David Klein said Canopy could enter the U.S. legal market for THC products “during calendar 2021,” provided legislation allowed it.
Canopy has a deal in place to buy U.S. cannabis operator Acreage Holdings and has a CBD business here as well.
Canopy Growth stock has a 9 Composite Rating and a 54 EPS Rating.
Tilray Stock Chart
Tilray (TLRY) has merged with Aphria. Some marijuana stocks analysts have questioned the move, as well as the companies’ positioning in the U.S.
The stock has a Composite Rating of 29 and an EPS Rating of 30. Tilray’s market cap is around $5.5 billion.
Aurora Cannabis Stock Chart
Aurora has said it would focus more on its premium products, while closing some facilities, after concerns about its cash. Some analysts have wondered whether Aurora should focus more on its Canadian medical business, which has been bigger than its recreational business.
The stock has a 3 Composite Rating and a 42 EPS Rating.
Innovative Industrial Properties Stock Chart
Innovative Industrial Properties buys properties from pot growers and then leases them back. IIPR stock last month broke out from a cup base with a 222.18 entry.
But that breakout is several weeks old. Buying the stock after a bounce of its 50-day line might be a better move, IBD’s research shows.
The company last month reported earnings last month that beat estimates. Shares have a 99 Composite Rating. Their EPS Rating is 96.
Marijuana Industry ETFs
Amid the volatility in marijuana stocks, one way to avoid stock-specific risk is via ETFs. The ETFMG Alternative Harvest (MJ) ETF is one such option. The AdvisorShares Pure Cannabis (YOLO) ETF and the Cambria Cannabis ETF (TOKE) are others.
Another ETF, AdvisorShares Pure US Cannabis ETF (MSOS), offers investors exposure to U.S. multistate operators, which analysts say are on a sturdier path to profitability.
Are Marijuana Stocks Buys Right Now?
So are marijuana stocks a good buy right now? According to IBD’s investing methodology, no.
Investors eager to jump into the sector could buy them when they form bases and move into buy zones. Aside from Innovative Industrial Properties, whose ratings are in the 90s, IBD’s research shows that investors would be better served looking for stocks with better overall ratings that are closer to their highs.
Check out IBD Stock Lists and other IBD content to find dozens of the best stocks to buy or watch.
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