With uncertainties regarding legalization and the existence of illicit practices in the field, let’s look into the fundamentals of SNDL Inc. (SNDL) and Canopy Growth Corporation (CGC) to see if they could be wise portfolio additions now.
The Canadian cannabis industry, one of the largest legal cannabis markets, is facing turbulent market conditions. A government-appointed expert panel found that despite the legal cannabis market’s growth in the country, companies operating in this space are struggling to realize profits.
Simultaneously, in the United States, nationwide legalization of cannabis is still far away. Even though there is strong opposition to the Federal ban on marijuana, it is not expected to be lifted in the next ten years.
Moreover, as cannabis is Federally illegal, moving the product around across state lines is difficult, creating supply and demand imbalances. On top of it, illicit markets for the substance also pose a serious hurdle.
Considering these unfavorable trends, let’s take a look at the fundamentals of the two cannabis stocks in the Medical - Pharmaceuticals industry to understand why it might be wise to avoid them now.
Stock #2: SNDL Inc. (SNDL)
Headquartered in Calgary, Canada, SNDL engages in the production, distribution, and sale of cannabis products in Canada. The company operates through four segments: Liquor Retail; Cannabis Retail; Cannabis Operations; and Investments.
In terms of the trailing-12-month gross profit margin, SNDL’s 19.43% is 65.1% lower than the 55.73% industry average. Likewise, its 0.96% trailing-12-month Capex/Sales is 78.8% lower than the 4.50% industry average.
SNDL’s total revenues for the second quarter ended June 30, 2023, came in at CAD257.43 million ($188.88 million). However, its loss from operations stood at CAD29.49 million ($21.64 million). The company’s net loss came in at CAD33.16 million ($24.33 million). Also, net loss per common share attributable to owners of the company was reported to be CAD0.12.
Additionally, the company’s cash and cash equivalents balance of CAD185.46 million ($136.07 million) as of June 30, 2023, decreased 33.7% from CAD279.59 million ($205.14 million) as of December 31, 2022.
For the fiscal year ending December 31, 2023, SNDL’s EPS is expected to remain negative. Over the past nine months, the stock has declined 33% to close the last trading session at $1.54.
SNDL’s weak fundamentals are reflected in its POWR Ratings. It has an overall rating of F, which translates to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an F grade for Stability and Quality and a D for Value. It is ranked #151 out of 158 stocks in the Medical - Pharmaceuticals industry. To see SNDL’s Growth, Momentum, and Sentiment ratings, click here.
Stock #1: Canopy Growth Corporation (CGC)
Headquartered in Smiths Falls, Canada, CGC engages in the production, distribution, and sale of cannabis and hemp-based products for recreational and medical purposes, primarily in Canada, the United States, and Germany. It operates through two segments, Global Cannabis and Other Consumer Products.
In terms of the trailing-12-month Capex/Sales, CGC’s 2.20% is 51.1% lower than the 4.50% industry average. Additionally, its 0.14x trailing-12-month asset turnover ratio is 62.7% lower than the 0.38x industry average.
CGC’s net revenues for the first quarter of fiscal 2024 came in at CAD108.73 million ($79.78 million). However, its operating loss stood at CAD29.49 million ($15.92 million). Moreover, the company’s net loss attributable to CGC and loss per share came in at CAD38.12 million ($20.62 million) and CAD0.07, respectively.
Street expects CGC’s EPS for the quarter ended September 30, 2023, to remain negative. It failed to surpass the consensus EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has declined 74.5% to close the last trading session at $0.68.
CGC’s POWR Ratings reflect its bleak outlook. The stock has an overall rating of D, equating to a Sell in our proprietary rating system.
It has an F grade for Momentum and Stability and a D for Quality. It is ranked #133 in the same industry. Beyond what we stated above, we also have given CGC grades for Growth, Value, and Sentiment. Get all CGC ratings here.
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CGC shares were trading at $0.69 per share on Friday afternoon, up $0.01 (+1.33%). Year-to-date, CGC has declined -70.13%, versus a 13.81% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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