In Canada’s industrialized economy, growth investors expected cannabis stocks to deliver explosive returns post the legalization of marijuana on October 17, 2018. Many pinned their hopes on presumed industry titan Canopy Growth (TSX:WEED). Unfortunately, an industry-wide pot bust happened instead of a green rush.
Constellation Brands saw great potential in the growing market and invested more than US$4 billion in Canopy Growth. But like most investors in the cannabis space, the American alcoholic beverage maker incurred significant losses. It posted a US$1.1 billion net loss in one quarter of 2022 due mainly to impairment charges from Canopy Growth.
As of this writing, WEED trades at $1 per share and the market cap has been decimated, falling to $755.7 million. The stock is down 68.2% year to date, and the current share price is 99% lower than on October 16, 2018.
Tilray Brands (TSX:TLRY) and Cronos Group (TSX:CRON) were second-rate players, but I’d buy them today over Canopy Growth. Both companies must be doing well because they are bigger in size by market cap now.
Market leader
Tilray Brands reported record revenue and lower losses in Q1 fiscal 2024. In the three months that ended August 31, 2023, net revenue rose 15% to US$177 million versus Q1 fiscal 2023. Its net loss narrowed by 15% year over year to US$56 million.
Notably, the $2.1 billion cannabis-lifestyle and consumer packaged goods company holds the number one position in the cannabis market with a 13.4% share. Besides focusing on medical cannabis, Tilray enjoys an early-mover advantage in Europe and other international markets where cannabis legalization proliferates.
According to its Chairman and CEO, Irwin D. Simon, Tilray is Canada’s top cannabis LP because of its diversified business model. The distinct and complementary business segments include medical and adult-use cannabis, beverages (craft beer, spirits, ready-to-drink mixed cocktails in a can, non-alcoholic drinks), THC and CBD beverages, wellness products, and medical distribution.
Healthy balance sheet
In the first half of 2023, Cronos Group’s consolidated net revenue declined 13% year over year to US$38.5 million, while net loss improved 48% to US$23.7 million from a year ago. The $1 billion cannabinoid company maintains an industry-leading balance sheet ($841 million in cash and short-term investments).
Cronos’ Spinach brand holds the number one market share position in the edibles category in Canada in Q2 2023. The new SOURZ by Spinach flavour, Pink Lemonade, is the fourth-highest-ranked edible SKU.
Mike Gorenstein, Chairman, President and CEO of Cronos, said, “Our cost reduction efforts and improved balance sheet management continue to yield an improvement in cash flow. Having the best balance sheet in the industry allows us to be patient and selective with our growth initiatives, and you will continue to see a methodical approach to growth.”
Gorenstein adds, “We will continue to push forward on new market growth opportunities and expand our portfolio of borderless products to be ready for new markets as they open.”
Higher returns
Canopy Growth is absurdly cheap compared to Tilray ($2.91) and Cronos ($2.70). However, they have better chances of producing higher returns than the erstwhile industry titan owing to their market-leading positions.
