Since legalization, cannabis stocks have dropped to lower and lower. It seemed like the bubble not only burst, but that investors really could not see a future. That is, until the recent election and inauguration of the new US President Joe Biden.
Cannabis shares basically rose across the board after the inauguration of the new democratic leader of the free world. In the November 2020 election, there were also four states that legalized the use of marijuana for recreation. But does it make marijuana a good buy today?
While there are definitely cannabis stocks to consider, it is not a good choice as it looked in 2018. In fact, I would stay far away from these three stocks now and in the future. Even though the United States legalizes marijuana across the country, these stocks are still up for failure.
Aurora Cannabis
Aurora Cannabis Inc. (TSX: ACB) (NYSE: ACB) was once considered the biggest thought that has happened to cannabis stocks. The company not only boasted the largest pot production, but also the cheapest price per gram. But while other cannabis companies entered into partnerships, Aurora refused. On the contrary, it has diluted stocks time and time again, creating a situation from which it simply cannot climb back.
Although the company can still boast low costs, it may be duplicated by others in the future. It also focuses primarily on medicinal marijuana, which will soon take a back seat as cannabis continues to grow. Shares have now risen by 133% in just the past five years, nothing compared to other companies in the four figures, and have risen 92.5% since the legalization. Revenue continues to decline year on year, and the earnings value above sales (EV / sales) has remained at a high 11.2x for the last 12 months (LTM). Sorry investors, this stock is up, but definitely not cheap.
Cronos Group
Cronos Group Inc. (TSX: CRON) (NASDAQ: CRON) has an advantage over Aurora in that it is in the United States and has a partnership with Altria. Unfortunately, the company still has a lot of competition. Although it has an advantage in the cannabidiol (CBD) market, the market will be nothing if and when cannabis is legalized in the US. And also, the medicinal market will also lag behind once recreational use has taken hold.
If you look at EV / sales now, Cronos is incredibly expensive among cannabis stocks with 59.2 times in the LTM! Although revenue has increased year-on-year with the increase in recreational use, it is still far behind when it was a few quarters ago. Although the stock has risen 36% in the past year, it is still 57% lower than its highest point in March 2019. Again, analysts just think that this stock does not need the necessary to tackle cannabis competitors.
Bottom line
There are definitely some stellar cannabis stocks to choose from to take advantage of this momentum. But these stocks are not one of them. Every company has way too much to crawl back from, and with other stronger options for long-term investors, it’s best to stay away.
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