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Are Any Marijuana Stocks On U.S. Exchanges Buys On Potential U.S. Legislation?

Canadian marijuana stocks rallied Thursday, then gave up those gains on Friday, following a Bloomberg report that U.S. Senate Democrats plan to introduce a federal cannabis decriminalization bill this month. So are Canadian marijuana stocks buys now?

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The bill, the Cannabis Administration and Opportunity Act, is backed by Sens. Chuck Schumer, Cory Booker and Ron Wyden. A draft of the legislation was first unveiled last year. But the timing of its formal introduction had been pushed back earlier this year.

The law would still allow states to set their own marijuana policies. And it would expunge non-violent convictions related to cannabis and invest in areas hit disproportionately hard by the War on Drugs.

The House also recently passed the MORE Act, another federal cannabis decriminalization bill. But the path of both bills in the Senate is unclear.

Those legislative efforts would follow a year of soured optimism over the prospect of U.S. cannabis reform. That sentiment has dragged marijuana stocks lower through this year. And even if the U.S. passes full federal legalization, the implications for Canada's pot producers are unclear.

Meanwhile, the cutbacks continue for Canada's marijuana industry. Aurora Cannabis (ACB) in June said that it would lay off around 12% of its staff.

The company said the layoffs were part of earlier efforts to save around 70 million to 90 million Canadian dollars "to support our path to profitability."

Aurora and its rivals have dealt with layoffs, facility closures and executive-team shakeups over the past few years, following losses, competition and overexpansion. Market share continues to shrink for big Canadian marijuana stocks like Hexo (HEXO), Canopy Growth (CGC) and Tilray (TLRY).

Below, we take a look at some of the marijuana stocks trading on the major U.S. exchanges.


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Marijuana Stocks and IBD

IBD only has full ratings for marijuana stocks in Canada that trade on the big U.S. exchanges. But it also tracks stocks related to the marijuana industry, like Innovative Industrial Properties (IIPR), a U.S. cannabis-focused real-estate investment trust.

MarketSmith also has limited ratings data for some U.S.-based cannabis producers that operate in legal states, like Curaleaf (CURLF), Green Thumb Industries (GTBIF) and Trulieve (TCNNF). Those marijuana stocks trade over the counter and in Canada.

Cronos Stock Chart

Cronos stock has a 40 Composite Rating and an EPS Rating of 66. Ratings for other marijuana stocks are also weak.

Cronos Group said it lost nine cents per share during its first quarter, reported in May. That was in line with expectations. Revenue of $25 million was above estimates for $24 million. Extracts used for vapes and edibles in Canada's recreational market, along with sales gains in Israel's medical market, helped sales.

Jefferies analyst Owen Bennett, in a research note, said the investment case for Cronos centered not on its operations, but its piles of cash from Altria (MO), which has a 45% stake in Cronos.

He said that "this cash provides optionality, and potentially critically, optionality around U.S. exposure, and the ability to secure U.S. assets ahead of/or post any favorable U.S. legislative change — which we believe could come soon."

Cronos has a deal in place that allows a subsidiary to take a roughly 10.5% stake in PharmaCann, a U.S. multi-state operator, contingent on U.S. federal legalization and regulatory clearance.

Hexo Stock Chart

Hexo (HEXO) stock has a weak 3 Composite Rating. Its EPS Rating is a worst-possible 1.

Hexo has cut jobs and tried to shrink costs and lower its debt burden. The company in April appointed a new CEO and a new acting CFO.  Tilray recently agreed to buy up millions in Hexo's convertible debt — potentially giving that company a big stake in Hexo down the road.

Canopy Growth Stock Chart

Canopy lost $1.14 per share, worse than the 23 cents expected, when it reported earnings in May. Sales of $87.6 million missed expectations and were down from the prior quarter and year.

Cannabis revenue fell. Investments in Biosteel, a sports-drink maker it majority-owns, and the company's U.S. strategy will weigh on margins and profits in the coming quarters.

Canopy has a CBD business in the U.S., which includes brands from the likes of Martha Stewart. It has deals in place to eventually buy U.S. cannabis operator Acreage Holdings, California extract maker Jetty Extracts, and Wana Brands, an edibles maker in the U.S.

Canopy Growth stock has a 2 Composite Rating and a 50 EPS Rating.

Tilray Stock Chart

Tilray in April reported mixed third-quarter earnings.

The company merged with Aphria last year. It also owns a hemp-granola maker, a craft brewer and a distiller — with hopes of selling THC cannabis products through at least some of those companies whenever federal legalization happens in the U.S. Along with the Hexo deal, it also has a deal that could eventually hand it a stake in struggling U.S. cannabis retailer MedMen.

Some marijuana stocks analysts have questioned that approach. The stock has a Composite Rating of 26 and an EPS Rating of 70.

Aurora Cannabis Stock Chart

Aurora Cannabis (ACB), when it reported quarterly results in May, lost 4.72 Canadian dollars per share, well below expectations for a 23-cent per-share loss. Sales missed expectations, and were down from the prior quarter and year.

Aurora has sold off production facilities in Canada and abroad in recent months in an effort to cut costs. But in March, said it reached a deal to acquire Thrive Cannabis. The move, it said, would advance its "premiumization" strategy.

The stock has a 2 Composite Rating and an 18 EPS Rating.

Innovative Industrial Properties Stock Chart

Innovative Industrial Properties buys properties from pot growers and then leases them back. In doing so, they provide an infusion of funding for cannabis companies that might otherwise have more difficulty accessing traditional banking services.

Shares sank in April after short seller Blue Orca Capital said it had taken a position in the company, citing what it said were financial struggles among its tenants.

"In the last 18 months, we think IIPR's loan book appears to have degraded significantly as the sector has become more competitive and IIPR stretched for lower quality tenants in search of continuing growth," Blue Orca said in a report making the case for its position.

IIPR, in response, said the report contained "numerous false and misleading statements" about the company. And it said the report "is flawed and demonstrates a basic lack of understanding of commercial real estate generally, the regulated cannabis industry and IIP's straightforward, simple business model."

The company in May reported mixed first-quarter earnings. Shares have a 56 Composite Rating. Their EPS Rating is 96, indicating strong profit growth overall.

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 any marijuana stocks a good buy right now? Based on IBD's analysis, no.

Check out IBD Stock Lists and other IBD content to find dozens of the best stocks to buy or watch.

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