Cannabis stocks are well past the superior heights we saw before Canadian legalization. Now, these companies trade at pennies on the dollar, especially when compared to former all-time highs. But with the market doing so poorly, and a turnaround eventually coming in 2023, is now perhaps the time to consider cannabis stocks once more?
What’s happened in the cannabis industry
When looking at what’s happened in the marijuana industry, what this really means is what’s been going on in the United States. More and more states continue to come on board with the medicinal or recreational use of cannabis, or both. Twenty-two states have now legalized the recreational use of cannabis, and that number continues to climb.
Even so, cannabis stocks have taken different tacts to bring in more revenue. The United States continues to be the big fish every company wants to catch. But this remains a huge waiting game until federal legalization occurs.
So in the meantime, these cannabis stocks have more legal avenues to consider. So now, let’s turn our attention to the two biggest cannabis producers, and see if May 2023 is a time to buy.
Tilray (TSX:TLRY) is down 35% in the last year but recently saw a jump in its share price. The stock climbed about 17% as subsidiary SweetWater Brewing announced two branded bars will open at Atlanta sports stadiums. Now, if you’re wondering, no, you won’t be getting cannabis-infused beverages. Instead, the company will offer its beers to patrons.
Even so, this recent move shows Tilray stock will look everywhere to make profits for shareholders. IThe cannabis producer continues to demonstrate 16 consecutive quarters of positive earnings before interest, taxes, depreciation and amortization (EBITDA). And that’s saying quite a lot, given the industry is plagued with debt.
Yet it’s not all good news. Tilray stock announced it would purchase Hexo stock for US$56 million, to help navigate the “challenging” cannabis scene. In response, shares dropped significantly. This now means Hexo stock’s debt is now Tilray stock’s debt. But management continues to believe it can take on the company and indeed deliver growth in the long term.
While Tilray stock has been expanding, Canopy Growth (TSX:WEED) has been doing the same. Yet some believe Canopy Growth stock may have jumped the gun as the cannabis producer went through with its Acreage Holdings acquisition.
This was meant to be completed when federal legalization came on the table in the United States. Yet that’s still not the case, with President Joe Biden merely offering pardons to those jailed for simple marijuana possession. Sure, it’s a step in the right direction, but we’re still far away from full-blown legalization.
So yes, Canopy Growth stock certainly could be set up to be a huge marijuana producer in the U.S. But it has to fund this growth, and that’s something the company continues to struggle with. While Tilray stock has profits, Canopy Growth stock continues to trade at a loss. However, its expansion in non-THC products has produced more cash that the company could use to reach a profit as early as 2024.
May 2023 is not the time to buy cannabis stocks. These companies could see a turnaround this year, but I doubt that will come before the end of summer. Instead, it’s a time to get defensive in your portfolio and create some cash. Then, when the market recovers, you can consider holding these companies on your watchlist as 2023 comes to a close. And I do mean these cannabis stocks, as pretty much every other cannabis company out there doesn’t stand a chance in this tough market.