Marijuana Stocks: A Performance Review and a Look Ahead

Canopy Growth Corp. (TSX:WEED) is down up to 38% since January in a reversal of investor sentiment that may have only just begun.

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To say that the market has been volatile these past couple of weeks would be an understatement.

To say that marijuana stocks have been volatile would be an even bigger understatement. The volatility has been wild and surely extremely tough for shareholders to handle.

So, let’s touch base and see where we’re at.

Aphria Inc. (TSX:APH)

Aphria is down 34% from highs that were hit in January. That’s a mere four weeks ago.

During this time, the company divested of part of its stake in Liberty Health Sciences to reduce its exposure to the U.S., where marijuana is still illegal at the federal level of government.

Aphria also announced the $826 million cash and stock acquisition of Nuuvera. The offer was made at to buy Nuuvera at $8.50 per share, and the shares are now trading at $6.25. That’s more consolidation at what may very likely have been the highs of the market.

Aurora Cannabis Inc. (TSX:ACB)

Aurora’s stock has fallen 27% from its highs in January, a month in which the company acquired a 20% stake in Liquor Stores N.A. Ltd. (TSX:LIQ) and reported second-quarter fiscal 2018 revenue growth of 42% sequentially. Yet the stock was down on that day and is down big since January.

That tells me that this company (and marijuana stocks in general) is fighting such high expectations that are being baked in to the stock price that the only way for it to go is down.

As for the whole Cannimed Therapeutics Inc. (TSX:CMED) saga, the most recent turn of events was disappointing, as the business decision to pay up for Cannimed was the wrong one, in my view.

Aurora effectively increased its offer price from the initial $24 per share back in November to $44 per share recently. That’s almost double the initial offer and shows little discipline or patience.

The company is clearly motivated to increase its scale and presence at all costs, which is never a good thing.

This lack of discipline will cost shareholders, as the company will pay for this inflated price tag with cash and the issuance of common shares.

Canopy Growth Corp. (TSX:WEED)

Canopy shares have fallen 38% in the last month, and as far as I can see, the risk to the downside remains elevated.

With negative earnings and cash flow, a price-to-sales multiple of 90 times, and a still uncertain regulatory environment, the risk is too high.

Think back to the dot-com bubble. There was no shortage of banks and brokerages scrambling to raise money for all sorts of dot-com companies, as they wanted to get in on the action and profit from the big bucks that were being made.

That didn’t mean that these companies were good investments. And it didn’t stop the meltdown. It probably foretold it.

I remain on the sidelines, gladly missing out on any potential upside to protect my hard-earned money from the huge downside. I make investing decisions based on fundamentals and not speculation.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Karen Thomas has no position in any of the stocks mentioned.

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