It used to be profitability that signified a Canadian cannabis stock’s biggest buy signal. Right now, though, it’s cash runway. Profitability is still crucial, but cash is key in the race for survival. And not all Canadian cannabis stocks are going to survive. “Survive now, thrive later” is the name of the game. So, which companies are likeliest to get through to the final round? Let’s take a look at the biggest names.
The three “safest” Canadian cannabis companies
There’s no such thing as a safe Canadian cannabis stock. Not yet, anyway. However, three big names stand out because of their cash runways. Which one is a better buy?
Canopy Growth (TSX:WEED)(NYSE:CGC) is often held up as being the one stock to buy for eventual cannabis market dominance. Gone are the days of high momentum. Long positions are now the surest way to play the unsettled cannabis space. Stocks like Canopy have buckets of cash on hand, making them the safest bets — not that any cannabis stock can be considered safe in the current economic climate.
Cronos Group is still sitting on a pot of gold after its Altria Group cash injection. $2 billion can go a long way — about 140 months, to be precise. Capacity is king for this lighter-weight Canadian cannabis player due for an earnings report. The company is highly maneuverable, with smaller assets and a focus on building a name. This model allows the company to outsource supply and drill down on getting that brand out there.
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Matching cash with performance
Aphria has enough in the kitty to live off for almost two years. Compare this with a struggling Canadian cannabis sector that often has a quarter of that cash. This popular name has a run of decent quarters under its belt. Look at that +450% revenue boost back in January. Supply is still an issue, but this shouldn’t be a long-term thing. The company’s outlook is solid for 2020, and how many companies can say that right now?
Canopy Growth is a little behind Aphria with an 18-month cash runway. This is still impressive by the sector’s standards. However, the lower-risk investor may want to plump for one of Canopy’s aforementioned competitors. One thing that Canopy has going for it, though, is diversification. The company was strongly focused on acquisitions for a while. This has left it with a broad income base.
The company is also big on branding, pulling in big-name celebrity endorsements. Its management is also infused with corporate know-how from Constellation Brands. The company has been stripped back, making for a lighter operation. It’s still one of the more solid Canadian cannabis stocks, given that executive expertise and $2.3 billion in cash.
The bottom line
Investing in Canadian cannabis isn’t done yet. The industry sits at an intriguing intersection of sin stocks and healthcare, and could prove recession-proof. Positive momentum hasn’t entirely left the sector, either. The best names are the ones slashing capex and focusing on profitability. Upside could therefore reward investors in these three stocks most likely to survive the next 18 months.
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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 Victoria Hetherington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Constellation Brands.