The Canadian cannabis sector has certainly been a volatile one for investors to be involved in over the course of recent years. From an incredibly overvalued state following the legalization of cannabis by the federal Canadian government in 2018 to a beaten-down state in recent years, pot stocks have certainly bounced around in a much too volatile fashion for many investors.
But at current levels, and based on existing fundamentals, the question is whether specific pot stocks may fit an investor’s portfolio. Of course, I’d argue that investor preferences may differ, and these stocks are most likely best-suited for those who are more prone to risk taking.
Nonetheless, let’s look at three top cannabis players, and see if they are worth considering at current levels.
Canopy Growth Corporation
Canopy Growth Corporation (TSX:WEED) is among the most well-known and recognizable players in the Canadian cannabis space. Once the world’s most valuable pot stock by market capitalization, Canopy Growth has seen its share price drop by more than 99% from its peak, as the chart below shows.
Like many pot stocks that thrived on the basis of its brand (in this case “Tweed”) and associations with celebrities like Snoop Dogg, Canopy Growth saw tremendous growth on paper. However, the company’s financial results did not bring home the bacon over time, leading to a dramatic decline in this company’s valuation to just $615 million today.
Much of the company’s share price decline has been tied to significant dilution, both relating to previous acquisition deals carried out at the height of the market, as well as other macro forces such as oversupply and increased competition.
That said, Canopy Growth has achieved a gross profit of $23 million this past quarter, according to its Q1 2025 financial results. Gross profit rose 67% year over year as the company focused on efficiencies, leading to a 47% decline in loss from continued operations and a 31% decline in cost of goods sold.
These are certainly positive trends for the stock, which could benefit greatly from any sort of positive legalization announcement in the U.S. Canopy Growth, like other pot stocks, relies heavily on regulatory tailwinds to see valuation increases, so investors will want to keep a close eye on how the U.S. election shapes up over the next few weeks.
Aurora Cannabis
Aurora Cannabis (TSX:ACB) is another Canada-based recreational cannabis giant that many investors consider to be top-tier in this space. The company’s status as a major distributor of medical marijuana has bolstered its valuation somewhat, though this stock has seen similar declines to that of Canopy Growth in recent years, as the chart below shows.
Aurora’s recent decline has been tied to similar sector-specific challenges around over supply and competition plaguing most players in this space. And like Canopy Growth, Aurora has done well to improve its financial picture of late, focusing on creating a leaner operating model and generating positive cash flow.
In Q1 FY2025, the company reported total revenue of $83.4 million, up 12% from the same quarter last year. Meanwhile, its EBITDA has increased 87% year-on-year to $4.9 million, and the company also generated positive cash flow of $6.5 million.
With its balance sheet and cash flow profile greatly improved, Aurora Cannabis has made recent strides in auto-flowering research, developing outdoor cultivation techniques for the indoor plant. This may help the company overcome the challenges of shorter growing seasons in Canada.
Bottom line
Both companies have exhibited better cost discipline and are working on re-shaping their balance sheets to be much more favourable to investors. Of course, the question is whether any sort of positive regulatory catalysts will take hold, and what sort of market share these established Canadian brands could have in the U.S. Thus, there’s plenty of speculation likely still built into these companies’ valuations.
But at current levels, I do think long-term growth investors are starting to take a look at these stocks once again. If there is a resurgence in the years to come, I think some investors can certainly take advantage of these lower share prices and dollar cost average into positions here. These two companies would be among the top picks in this sector, in my view.
