Back in May, cannabis stocks briefly came back into vogue. This was due to a small amount of regulatory progress. Yet as U.S. marijuana legalization on the federal level remains largely in limbo, instead of figuring out which cannabis stocks to buy, you should be figuring out which cannabis stocks to sell.
Yes, there are some marijuana stocks that can thrive, even as the industry in the U.S. remains sandwiched between legal, regulated state markets and federal laws that create banking and other operational challenges.
However, while news of the U.S. Department of Justice proposing a reclassification of marijuana as a less risky drug is a step in the right direction, it’s not the game changer some initially made it out to be. As U.S. Federal Government restrictions persist, state-level operators, as well as cannabis companies from Canada and elsewhere, will remain limited in their ability to fully capitalize on American recreational and medicinal marijuana demand.
Until restrictions are eased, “pot stocks,” like these seven cannabis stocks to sell, are likely to remain under pressure. Especially as fiscal results continue to disappoint, and high cash burn necessitates dilutive capital raising.
Aurora Cannabis (ACB)
Throughout the spring, developments like the above-mentioned rescheduling news, plus news of other potential regulatory changes, send cannabis stocks soaring. Aurora Cannabis (NASDAQ:ACB) was no exception.
However, with hopes of a fast-track to full U.S. legalization once again put on hold, shares in this Canada-based cannabis purveyor have unsurprisingly coughed back most of the gains accrued during this rally. Worse yet, ACB stock may have more room to fall. Yes, the company’s latest fiscal results and guidance suggest that Aurora Cannabis could still thrive, even as the U.S. recreational market remains out of reach.
Thanks to a focus on the medicinal market, not just in Canada but in Europe and Australia as well, Aurora continues to steadily increase revenue, while at the same time it continues making progress narrowing losses. However, with the prospect of the company making progress towards hitting breakeven on a GAAP basis perhaps already priced-in, shares could be vulnerable to a further reversal, if subsequent results fail to live up to this expectation. Consider giving ACB a second look, if the sell-off continues, yet for now staying away is your best move.
Ayr Wellness (AYRWF)
Based in Miami, Florida, Ayr Wellness (OTCMKTS:AYRWF) is a multi-state operator (MSO), with vertically-integrated cannabis production, distribution and retail operations in seven U.S. states.
AYRWF stock has doubled in the past year, but if you had the good fortune of discovering Ayr when it traded at far lower price levels, consider now the perfect time to realize your gains, by making it one of the cannabis stocks to sell. MSOs may be poised to benefit greatly, in the event federal-level cannabis laws are finally reformed. However, not only do reclassification and decriminalization remain works in progress. Reforms to marijuana banking and tax laws continue to be delayed by Congressional gridlock as well.
Slow progress in changing federal law will continue to both stymie Ayr’s growth potential. It also leaves the company, like other U.S.-based pot companies, stuck paying a higher amount of income taxes than they would if the business was deemed “fully legal” in the eyes of Uncle Sam. Delays in regulatory changes could make investors impatient. In turn, leading to a sell off for MSO stocks like AYRWF. Hence, you may want to wait for further weakness before getting back into such names.
Cannabist Company Holdings (CBSTF)
While some MSOs are thriving despite the regulatory challenges, this isn’t a universal phenomenon. Cannabist Company Holdings (OTCKTS:CBSTF), for instance, has fallen short of expectations, and there may be a risk that this trend of lackluster performance continues. Last quarter, the New York-based cannabis grower, wholesaler and retailer, once known as Columbia Care, missed on both revenue and earnings.
Revenue of $122.6 million came in around $4.1 million below analyst forecasts. Negative earnings per share of 8 cents came in 2 cents above expected per-share losses for the quarter. This comes despite the fact that Cannabist has obtained significant scale, with operations located across 15 U.S. states. However, while not certain, the fact that these are all markets with higher levels of competition may be a reason behind Cannabist’s poor fiscal results.
Again, there are solid MSO plays out there, stocks that have strong fundamentals, trade at a reasonable valuation and have the potential to make moonshot moves if/when the U.S. Federal Government eases on restrictions. CBSTF stock, however, is a prime example of a MSO that is not worth buying, even as a “lottery ticket” wager on faster-than-expected legalization progress.
Canopy Growth (CGC)
Canopy Growth (NASDAQ:CGC) is one of the cannabis stocks to sell for similar reasons described above, but with a twist. Along with being a sell due to a murky regulatory environment, shares in this Canada-based cannabis company are also a sell due to dilution risk.
In order to absorb losses and shore up its balance sheet, Canopy Growth has leaned on dilutive equity raises. These have played a big role in sending CGC stock down by around 98.5% over the past five years. The company most recently tapped into this financing source last month. That is, in early June, Canopy established its latest at-the-market (ATM) program.
The company plans to raise as much as $250 million through this program. The dilutive impact could be material. At least, based on the fact that, as of this writing, CGC has a market cap of just $490.1 million. Expect this capital raise to water the value of CGC shares. While operational and regulatory improvements are always possible, the latest news regarding legalization, as well as Canopy’s reported big losses during the preceding quarter, call into question whether rapid improvement is just around the corner.
Curaleaf Holdings (CURLF)
Curaleaf Holdings (OTCMKTS:CURLF) is another of the larger MSOs in the U.S. The company operates 18 cultivation sites and 145 dispensaries across 17 states. It’s also a large wholesaler to other dispensaries. Not only that, Curaleaf has international exposure as well.
As discussed in an April 2024 investor presentation, Curaleaf has cultivation, wholesale, and medicinal dispensary operations in both the U.K. and in continental Europe. Despite this solid business mix, however, CURLF stock is not really a strong buy at current levels, and is arguably more of a sell at this point. Why? As Seeking Alpha commentator Alan Brochstein argued in May, there are various reasons why Curaleaf is not an ideal choice among cannabis stocks.
For one, even if federal laws change that help to improve Curaleaf’s profitability, forecasts still call for net losses to persist. The company’s high debt level of outstanding long-term debt is another major concern. To top it all off, shares sport a premium valuation on an enterprise value to adjusted EBITDA basis. There’s nothing wrong with keeping an eye on it, as a buy on weakness. However, if you own CURLF today, consider it a sell.
Medicine Man Technologies (SHWZ)
Admittedly, it may be too late to declare that Medicine Man Technologies (OTCMKTS:SHWZ) is one of the cannabis stocks to sell. Shares in this MSO have fallen by more than 45.5% in the past month alone. Over the last twelve months, shares have fallen by a staggering 77.4%.
Still, take heed of this belated warning. What’s most important to note with SHWZ stock is the reason behind its latest sharp price decline. Put simply, this most recent sell-off isn’t due to any of the sector-related headwinds previously discussed. Rather, it has to do with an announced delisting of the company’s shares.
On July 2, Medicine Man announced that over-the-counter (OTC) trading of SHWZ is moving from the more liquid OTCQX segment of the OTC market, to what’s known as the OTC Expert Market. This market, out of reach by most retail investors, will undoubtedly lead to shares becoming both far less liquid, as well as far cheaper than before. Hence, if you are an individual investor holding Medicine Man, there’s little use assessing whether a rebound is possible. It’s time to take your losses and move on, pronto, before the listing move is completed.
Tilray Brands (TLRY)
Similar to Canopy Growth, Tilray Brands (NASDAQ:TLRY) is a sell due to dilution risk. Back in May, this Canada-based cannabis company announced its own plans for a $250 million ATM program. Yes, while a similarly-sized offering, the dilutive impact on TLRY may be less severe than the potential dilution risk ahead for CGC.
Compared to the $1.36 billion market cap of TLRY stock, raising another $250 million through the issuance of new shares may not have a tremendous impact on Tilray’s per-share valuation going forward. Even so, the prospect of less severe losses is of course cold comfort, if the expectation is to buy speculative growth stocks like this one for outsized capital appreciation.
However, take a look at sell-side forecasts for the current fiscal year ending May 2025. For FY 2025, analysts anticipate revenue growth of a little under 10%. In terms of earnings, the sell-side expects Tilray to only slightly narrow its losses, from 23 cents to 20 cents per share. Already at multi-year lows, further lackluster results, coupled with shareholder dilution, may lead to yet another move to even lower prices for TLRY.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.