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?
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Access to a bigger market like the U.S. could help alleviate the Canadian industry’s struggles at home, where profitability has been hard to come by. Canada’s pot industry has suffered from overexpansion. The industry has burned through too much money, grown too much weed and overestimated growth in newly-legal nations abroad.
In the U.S., the House Judiciary Committee approved the MORE Act, which would remove cannabis from the list of federally controlled substances. A measure that would open up banking access to cannabis businesses in legal states has been tacked on to a defense bill.
Still, entry into the U.S. wouldn’t be easy or even guaranteed for the Canadians, were the U.S. to fully legalize marijuana.
The legal marijuana market in Canada has also become more competitive. Regulations on advertising and a slow retail rollout, particularly in Ontario, have also weighed on growth. Some Canadian cannabis producers said coronavirus-related restrictions on stores hurt quarterly sales this year.
Below, we take a look at marijuana stocks’ chart patterns.
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Cronos Stock Chart
Cronos Group stock has a 10 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 (TLRY), Canopy Growth (CGC) 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 $5.5 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. Tilray this month reported quarterly results that missed expectations.
The stock has a Composite Rating of 14 and an EPS Rating of 48. Tilray’s market cap is around $4.9 billion.
Aurora Cannabis Stock Chart
Aurora Cannabis (ACB) recently said it would close one of its facilities, laying off around 8% of its workforce in the process.
The company last month also reported sales that missed expectations. Even as legal cannabis sales in the nation rebound, Aurora said its overall cannabis revenue fell, citing difficulties in Canada’s recreational market. But sales in its medical-cannabis business, which is larger than its recreational segment, moved higher.
Facility closings aside, Aurora has said it would focus more on its premium products, 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 18 Composite Rating and a 45 EPS Rating.
Innovative Industrial Properties Stock Chart
Innovative Industrial Properties buys properties from pot growers and then leases them back. Shares are in a flat base with a 253.71 buy point.
The company in August reported earnings 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. Or, in the case of Innovative Industrial Properties, investors could buy it once it clears its base and enters such a buy zone.
For the other marijuana stocks mentioned here, IBD’s research shows that investors would be better served looking for stocks with stronger 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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