Cannabis stocks have been quite volatile over the past year. Stocks surged as retail investors piled in and growth stocks outperformed. Then, the sector had another leg higher as Democrats winning the executive and legislative branches made people optimistic about it being legalized at the federal level. 

On the other hand, many cannabis producers are struggling as the crop’s price keeps trending lower due to advances in growing technology and increasing yield. Further, there are no barriers to entry. 

Given this backdrop, it could be wise to stay away from fundamentally weak cannabis stocks Canopy Growth Corporation (CGC), Hexo Corp. (HEXO), and Flora Growth Corporation (FLGC).

Canopy Growth Corporation (CGC)

Headquartered in Smiths Falls, Canada, CGC is a diversified cannabis company that operates through Global Cannabis; and Other Consumer Products. The company, through its subsidiaries, produces and sells legal marijuana in the medical and recreational market. Its products include dried cannabis flowers, oils, and concentrates, and soft gel capsules.

CGC’s total net revenue increased 23.4% year-over-year to CAD136.21 million ($107.69 million) in the fiscal first quarter ended June 30, 2021. However, the company’s total operating expenses rose 20.2% from the prior year's quarter to CAD214.95 million ($169.95 million). Its operating loss grew 8.9% from the year-ago value to CAD187.71 million ($148.41 million). Also, the company’s cash and cash equivalents declined 51.5% from CAD1.15 billion ($912.9 million) as of March 31, 2021, to CAD559.84 million ($442.63 million) as of June 30, 2020.

CGC’s EPS is expected to remain negative next year. Also, it is expected to decline 375.8% in the fiscal period ending March 2023. Moreover, the stock has lost 44% over the past three months and 58.2% over the past six months.

CGC’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating which equates to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its weighting.

Also, the stock has a D grade for Value, Sentiment, and Quality. We’ve also graded CGC for Growth, Momentum, and Stability. Click here to access all of CGC’s ratings. CGC is ranked #209 of the 212 stocks in the F-rated Medical – Pharmaceuticals industry.

Hexo Corp. (HEXO)          

HEXO is a Canada-based consumer packaged goods cannabis company that creates and distributes products for the cannabis market. The company serves the adult-use market through its HEXO, HEXO Plus, Up, Bake Sale, Namaste, REUP, Original Stash brands, and the medical market through its HEXO brand. In addition, it provides cannabis beverages under Little Victory, House of Terpenes, XMG, Mollo, and Veryvell brand names.

Last month, HEXO announced the pricing of its previously announced $140 million public offering of 47,457,628 units. The company expects to use the net proceeds from the offering to fund a portion of the cash component of the Redecan acquisition and other expansion-related expenditures.

During the third fiscal quarter ended April 30, 2021, HEXO’s non-beverage Canadian adult-use revenue decreased 7% year-over-year, primarily due to a decline in sales in the province of Quebec. Its loss from operations came in at CAD16.09 million ($12.72 million). The company’s net loss increased 6.1% year-over-year to CAD20.71 million ($16.37 million). Moreover, its adjusted EBITDA came in at negative CAD10.78 million ($8.52 million) for the quarter.

HEXO’s EPS is expected to remain negative for the fiscal period ending July 2022. Also, HEXO has failed to beat the consensus EPS estimates in three of the trailing four quarters. The stock has declined 68.1% over the past three months and 72% over the past six months.

HEXO’s poor prospects are also apparent in its POWR Ratings. The stock has an overall D rating, which equates to Sell in our proprietary rating system. Also, the stock has an F grade for Stability, Sentiment, and Quality.

In addition to the POWR Rating grades I’ve just highlighted, one can see HEXO’s ratings for Growth, Value, and Momentum here. HEXO is ranked #195 in the same industry.

Flora Growth Corporation (FLGC)

Based in Toronto, Canada, FLGC is an internationally focused cannabis company that cultivates and processes natural, medicinal-grade cannabis oils and cannabis-derived medical and wellbeing products. In addition, it manufactures and sells hemp textiles products that serve the medical and clothing industries. Mambe, Mind Naturals, Almost Virgin, Flora Lab, and Stardog are some of the company's popular brands.

In August, FLGC closed the previously announced €2 million ($2.32 million) investment in Hoshi International Inc. (“Hoshi”). Although this investment can increase FLGC’s fully-diluted ownership in Hoshi through a securities swap, it could negatively impact its cash balance in the near term.

For the six months ended June 30, 2021, FLGC reported revenues of $2.1 million. Its operating expenses stood at $7.2 million, while its net loss came in at $5.3 million. Also, its cash balance amounted to $18.8 million as of June 30, 2021.

Analysts expect FLGC’s EPS to be negative for the current year. Also, its stock price has lost 40.5% over the past month and 19.6% over the past five days.

It’s no surprise that FLGC has an overall rating of C, which translates to a Neutral in our POWR Ratings system. FLGC is also rated a C in Growth and Value, and a D in Stability. Within the C-rated Agriculture industry, it is ranked #19 of 32 stocks.

To see additional POWR Ratings for Sentiment, Quality, and Momentum for FLGC, click here.

CGC shares were trading at $12.92 per share on Monday morning, down $0.49 (-3.65%). Year-to-date, CGC has declined -47.56%, versus a 15.41% rise in the benchmark S&P 500 index during the same period.

Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research.

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