Many U.S. states are heading toward legalizing the sale of recreational cannabis. Last month, New Jersey took steps toward its legalization of cannabis, and it is expected that other states, including New York, Maryland, and Pennsylvania, would follow suit. However, some states that legalized recreational marijuana 10 years ago are now researching the public health implications of various new high-potency products amid questions about a potential connection to psychosis. According to the National Institute on Drug Abuse director, Dr. Nora Volkow, "We are seeing a very significant rise in psychosis associated with the consumption of marijuana."
According to BTIG analyst Camilo Lyon, "Cannabis, with its many federal and state regulatory restrictions still in place, has been driven into a recession by slow-moving policy changes." Even though the perspective toward cannabis is becoming more permissive and appealing across the country due to the product’s effective remedies and therapeutic and wellness applications, partisan gridlock in Congress has virtually ensured that legislation to decriminalize marijuana will die in the U.S. Senate.
Given this backdrop, we think it could be wise to avoid cannabis stocks HEXO Corp. (HEXO), Neptune Wellness Solutions Inc. (NEPT), and Clever Leaves Holdings Inc. (CLVR), which are down more than 55% in price year-to-date.
HEXO Corp. (HEXO)
Headquartered in Gatineau, Canada, HEXO and its subsidiaries produce, market, and sell cannabis in Canada. The company provides adult-use and medical products under the HEXO brand name. It also provides cannabis beverages under the Little Victory, House of Terpenes, Mollo, Veryvell, and XMG brands, and cannabis products under UP Cannabis, Original Stash, and Up brand names.
For the second quarter, ending Jan. 31, 2022, HEXO's loss from operations increased 9584.2% year-over-year to C$669.86 million ($522.19 million), while its total net loss and comprehensive loss grew 3212.3% from its year-ago value to C$690.25 million ($538.09 million). Its gross loss amounted to C$2.56 million ($2.00 million) compared to a C$18.58 million ($14.49 million) gross profit in the prior-year quarter. The company's loss per share rose 1041.1% year-over-year to C$1.94.
The consensus EPS estimate is expected to remain negative in the third quarter, ending April 30, 2022. The stock has plunged 57.8% in price year-to-date and 90.8% over the past nine months.
HEXO's POWR Ratings are consistent with this bleak outlook. The company has an overall F rating, which translates to Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
HEXO has an F grade for Stability, Quality, and Sentiment. Within the F-rated Medical – Pharmaceuticals industry, it is ranked #171 of 172 stocks. To see additional POWR Ratings for Growth, Value, and Momentum for HEXO, click here.
Click here to checkout our Healthcare Sector Report for 2022
Neptune Wellness Solutions Inc. (NEPT)
Headquartered in Laval, Canada, NEPT is an integrated health and wellness company. It develops a portfolio of lifestyle brands and consumer packaged goods products under the Biodroga Neutraceuticals, Forest Remedies, Ocean Remedies, Neptune Wellness, Mood Ring, PanHash, Sprout, Nosh, and NurturMe brands.
During the third quarter, ending Dec. 31, 2021, NEPT's loss from operating activities amounted to C$21.12 million ($16.47 million), while its net loss came in at C$20.94 million ($16.32 million). The company's loss per share stood at C$0.11.
NEPT's consensus EPS estimate is expected to remain negative in the fourth quarter, ending March 31, 2022. The stock has declined 62.8% in price year-to-date and 74% over the past nine months.
NEPT's weak fundamentals are reflected in its POWR ratings. The stock has an overall D rating, which equates to Sell in our POWR Ratings system. The stock has an F grade for Quality and a D grade for Stability. In the B-rated Medical - Consumer Goods industry, it is ranked #9 of 10 stocks.
In addition to the POWR Ratings grades I have just highlighted, one can see the NEPT's rating for Momentum, Growth, Value, and Sentiment.
Clever Leaves Holdings Inc. (CLVR)
CLVR in Boca Raton, Fla., functions as a cannabis company. The company has two operational segments, the Cannabinoid segment, which participates in the cultivation, extraction, manufacturing, commercialization, and distribution of cannabinoid products internationally, and the non-Cannabinoid segment, which is engaged in formulating and manufacturing, marketing, selling, distributing, and commercializing nutraceutical and other natural remedies.
CLVR's loss from operations grew 53.1% year-over-year to $11.89 million for the first quarter, ending March 31, 2022, while its net loss increased 17.3% from its year-ago value to $16.14 million. The company's loss per share increased 5.5% from its prior-year quarter to $0.58.
CLVR's consensus EPS estimate is expected to remain negative in the second quarter, ending June 30, 2022. The company's shares have declined 60.3% year-to-date and 87.8% over the past nine months.
CLVR's poor prospects are also apparent in its POWR Ratings. The stock has an overall D grade, which equates to a Strong Sell in our proprietary rating system. It also has an F grade for Quality and a D for Stability and Sentiment. CLVR is ranked #24 of 33 stocks in the D-rated Agriculture industry. Click here to see the additional POWR Ratings for CLVR (Growth, Value, and Momentum).
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HEXO shares were trading at $0.30 per share on Friday morning, down $0.00 (+0.57%). Year-to-date, HEXO has declined -57.06%, versus a -17.51% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.
3 Cannabis Stocks That Have Plunged More Than 55% in 2022 StockNews.com
