Marijuana stocks have been through their own share of highs and lows so far this year. Despite being a fast growing industry, supply issues in Canada have affected legal marijuana purchases of late.
High tax rates in some of the U.S. states as well as increase in black-market producers, especially in North America, have hurt sales. As a result, marijuana companies have been seeing a drop in operating margins across the board and have significantly lost value.
Yet, as we focus on November, there are three marijuana stocks that look like solid bargains, while one in particular should be avoided in the near future. Let us take a look —
Square, Inc. (SQ - Free Report) provides payment and point-of-sale solutions in the United States and internationally. But, the company announced plans of launching a platform for business houses to sell cannabidiol (CBD) products last month.
Lest we forget, the FDA has acknowledged that there is immense public interest in CBD as a wellness aid. CBD is widely used in treating pain, inflammation and epilepsy. What’s more, analysts estimate that nearly 65 million Americans have tried CBD and 63% have found it effective.
CBD, in the meantime, is a growing industry. Market research firm Brightfield projected that CBD sales in the United States alone will jump 55% to $648 million by the end of this year. In fact, they expect the U.S. hemp CBD market to reach a worth of $22 billion by 2022.
Square, thus, will certainly make the most of its foray into the CBD space. Square, currently, flaunts a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for its next-year earnings has increased 0.9% over the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
The company’s expected earnings growth rate for the current year is 63.8%, higher than the Internet - Software industry’s projected rally of 8.3%. Over the past month, the stock has outperformed the broader industry (+0.5% vs -3.5%).
CannTrust Holdings Inc. produces and distributes medical and recreational marijuana in Canada. It sells dried cannabis and cannabis extracts to patients.
Canada became the first country to legalize recreational weed last October. This has, undoubtedly, cemented the way for billions of dollars of legitimate annual sales and has helped the marijuana industry to come out from the shadows as a reliable business model, which bodes well for CannTrust.
CannTrust currently possesses a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for its current-year earnings has moved up 16.7% over the past 90 days.
The company’s expected earnings growth rate for the next quarter is 95%, in contrast to the Medical - Drugs industry’s projected decline of 45.6%. The stock has outpaced the broader industry over the past month (+11.1% vs +6.1%).
OrganiGram Holdings Inc. (OGI - Free Report) , through its subsidiaries, produces and sells dried cannabis and cannabis oil in Canada. Since OrganiGram was listed on the Nasdaq, its share price tanked more than 50%. Supply woes in Canada did took a toll on OrganiGram. But OrganiGram does have a competitive advantage over its peers.
OrganiGram can produce at least 100,000 kilos of marijuana on a yearly basis, way more than any of its competitors. OrganiGram also has marketing and branding advantages when it comes to supplying its products to eastern provinces in Canada, as it’s located in New Brunswick.
What’s more, OrganiGram is focusing on producing marijuana in one facility unlike its peers, which helps in minimizing costs and improving operating margins.
Talking about efficiency, OrganiGram produces about 230 grams of yield per square foot, while most of its peers are producing between 75 grams per square foot and 125 grams per square foot.
OrganiGram currently has a Zacks Rank #2. The Zacks Consensus Estimate for its next-year earnings has increased 5.3% over the past 60 days.
The company’s expected earnings growth rate for the next year is 300%, way more than the Medical - Products industry’s estimated rise of 17.2%. The stock has outperformed the broader industry over the past month (+5.9% vs +0.5%).
HEXO Corp. (HEXO - Free Report) produces, markets and sells cannabis in Canada. The company, unfortunately, had a weak October and November isn’t shaping up to be any better either. HEXO recently slashed its fourth-quarter sales to a range of CA$14.5-CA$16.5 million. It has also lowered its fiscal 2020 growth projections.
The company cited that pricing pressure on marijuana, delay in launch of derivatives products and slow rollout of physical dispensaries are the primary reasons for the dull outlook. HEXO currently has a Zacks Rank #4 (Sell). The Zacks Consensus Estimate for its current-year earnings has moved down more than 100% over the past 60 days.
The company’s expected earnings growth rate for the next year is a negative 66.7%, in contrast to the Medical – Products industry’s projected rise of 17.2%. The stock has underperformed the broader industry over the past month (-42.3% vs +0.5%).
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