2 Big-Name Marijuana Stocks That Are Losing Money

Canopy Growth Corp. (TSX:WEED) (NYSE:CGC) and Cronos Group Inc. (TSX:CRON) (NASDAQ:CRON) are up big in 2019, up 46% and 34% respectively, but as losses mount, is this sustainable?

| More on:
You Should Know This

Image source: Getty Images

The year 2019 has seen a resurgence of excitement for marijuana stocks after a period in 2018 when it looked like investors weren’t willing to bear the risks of these names anymore.

But here we are three weeks into the new year and big-name marijuana stocks such as Canopy Growth Corp. (TSX:WEED)(NYSE:CGC) and Cronos Group Inc. (TSX:CRON)(NASDAQ:CRON) are up sharply, 46% and 34% respectively, as CIBC initiates coverage and names these two stocks as their top marijuana stock picks.

This despite the fact that both of these companies are losing money today and may very well continue to lose money in 2019.

Canopy Growth

Canopy’s big vote of confidence came in the form of a big investment from Constellation Brands, which currently has a 38% stake in the company. This provided a boost to investor confidence in the company.

But dissecting Canopy’s results for the six months ended September 2018; we’re seeing the hallmarks of a growth company that’s in the early stages of growth, which means that the company is not making any money.

In fact, it’s losing significant amounts of money and is thus in dire need of financing.

This financing is coming from common share issuances and debt issuances to the tune of $100,000, and $600,000, respectively.

So shares outstanding are on the rise, increasing 22% to 200 million and diluting existing shareholders.

With 2019 looking to be similar to 2018 in terms of significant losses and heavy capital spending, there may be no rest for investors looking to gain exposure to the marijuana industry, as volatility will continue to rule the day and provide big gains as well as big losses.

Cronos Group

In the first nine months of 2018, Cronos used almost $35 million in cash flow for its operations and also raised money by issuing shares and effectively diluting its current shareholders.

Revenue did significantly increase, which is typical of marijuana companies, as this $3.5 billion market cap company continues to expand its global footprint.

The Altria partnership is a game-changer for Cronos, and it is this type of confidence and financial backing that gives investors confidence in this stock.

Final thoughts

In my view, investors should think about marijuana stocks as short-term trading opportunities for now.

The long-term value of any one of these marijuana stocks is highly volatile and subject to change given the lack of visibility and rapidly changing qualities of the marijuana industry and its constituents.

The stocks are expensive and still trading on sentiment and excitement, but if they’ve gotten ahead of themselves, how long will it take for this potential to catch up to the stock price?

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.

More on Investing

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »

Target. Stand out from the crowd
Investing

Prediction: This Canadian Growth Stock Could Double by 2030

Alimentation Couche-Tard (TSX:ATD) is a top growth stock that could do well over the next six or so years.

Read more »

Businessman holding AI cloud
Tech Stocks

Could Investing $20,000 in Nvidia Make You a Millionaire?

Nvidia stock has made investors millionaires in the last 10 years. Is it too late to invest to become a…

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

money cash dividends
Stocks for Beginners

Have $500? 3 Absurdly Cheap Stocks Long-Term Investors Should Buy Right Now

If you're looking for cheap stocks, these three have a huge future ahead of them, all while costing far less…

Read more »