The legalization of cannabis is gaining momentum in the United States. Americans are increasingly supporting legal cannabis, and legislatures have taken up the issue more often in recent years. Presently, adults can buy and possess marijuana for recreational purposes in 22 states and Washington, D.C., while cannabis is legal for medical use in 37 states and Washington, D.C.
Despite the growing momentum in legalization, it seems wise to steer clear of struggling cannabis stocks Curaleaf Holdings, Inc. (CURLF), Tilray Brands, Inc. (TLRY), and Verano Holdings Corp. (VRNOF) that exhibit weak fundamentals. Let’s understand in detail.
2022 was a hit-and-miss year for the cannabis industry. While new markets witnessed strong growth, many mature markets saw a decline in legal cannabis sales. Last year, taxable sales in California fell 8.3% to $5.3 billion. Marijuana sales in Colorado plummeted 20% to $1.8 billion during the same period, according to the state revenue department.
Meanwhile, retail sales in Washington State fell by 8%, a dip of $120 million in revenue in the fiscal year 2022. Even though some of this may be attributed to similarities the broader economy experienced in the wake of COVID-19, many businesses throughout the sector were still affected, suffering from layoffs, cash crunches, and rising debt.
Besides, after the majority of states legalized marijuana for personal or medical use, some of them implemented onerous tax policies and regulations. This has resulted in increased unlawful sales, which legalization supporters anticipated to limit in addition to delivering additional tax income.
Investors’ disinterest in cannabis stocks is evident from the Global X Cannabis ETF’s (POTX) 46.5% decline over the past six months. Against this backdrop, it could be wise to steer clear of fundamentally weak cannabis stocks CURLF, TLRY, and VRNOF. Let's discuss them in detail.
Curaleaf Holdings, Inc. (CURLF)
CURLF operates in the cannabis industry through two segments: Domestic Operations and International Operations. The company cultivates, produces, and sells cannabis products through retail and wholesale channels. Its product line includes flowers, pre-rolls, vaporizer cartridges, and concentrates for vaporizing and dabbing.
CURLF’s trailing-12-month gross profit margin of 43.33% is 22.2% lower than the 55.66% industry average. Its trailing-12-month net income margin of negative 27.69% compares to the negative 6.99% industry average.
For the fourth quarter that ended December 31, 2022, CURLF’s gross profit decreased 46.8% year-over-year to $78.10 million. Its loss from operations stood at $81.53 million. Also, the company’s net loss worsened 250.3% from the prior year’s period to $262.75 million.
As of December 31, 2022, the company’s cash and cash equivalents came in at $163.18 million, compared to $299.33 million as of December 31, 2021.
Analysts expect CURLF to report a loss per share of $0.06 for the fiscal first quarter (ended March 2023). Likewise, the company is expected to report a loss per share of $0.04 in the current fiscal quarter ending June 2023. Moreover, the company missed the consensus EPS estimates in three of the trailing four quarters, which is disappointing.
CURLF has lost 48.4% over the past six months to close the last trading session at $2.63.
CURLF’s weak fundamentals are reflected in its POWR Ratings. It has an overall D rating, equating to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an F grade for Momentum and a D for Quality. It is ranked #129 out of 165 stocks within the D-rated Medical - Pharmaceuticals industry.
Click here to see the other ratings of CURLF for Stability, Value, Growth, and Sentiment.
Tilray Brands, Inc. (TLRY)
With its headquarters in Leamington, Canada, TLRY researches, cultivates, produces, markets, and distributes medical cannabis products. The company operates through four segments, Cannabis Business; Distribution Business; Beverage Alcohol Business; and Wellness Business.
The stock’s trailing-12-month gross profit margin of 12.79% is 77% lower than the 55.66% industry average. Moreover, its trailing-12-month CAPEX/Sales of 2.35% is 49.3% lower than the 4.63% industry average.
For the fiscal 2023 third quarter that ended February 28, TLRY’s net revenue decreased 4.1% year-over-year to $145.59 million. Its operating expenses increased significantly from the year-ago value to $1.20 billion. Also, the company reported an adjusted net loss and adjusted loss per share of $23.42 million and $0.04, respectively.
Furthermore, as of February 28, 2023, TLRY’s cash and cash equivalents stood at $165 million, compared to $415.91 million as of May 31, 2022.
For the fiscal year ending May 2023, the company is expected to report a loss per share of $0.32. Likewise, analysts expect TLRY’s revenue for the ongoing fiscal year to decline 4.8% year-over-year to $598.45 million. Furthermore, TLRY failed to surpass the consensus revenue estimates in three of four trailing quarters.
Over the past year, TLRY has plunged 56.4% to close the last trading session at $2.28.
TLRY’s bleak outlook is reflected in its overall F rating, equating to a Strong Sell in our POWR Ratings system. It has an F grade for Momentum, Sentiment, and Value. The stock is ranked #163 out of 165 stocks within the Medical - Pharmaceuticals industry.
Click here to access additional TLRY ratings (Stability, Quality, and Growth).
Verano Holdings Corp. (VRNOF)
VRNOF is a vertically integrated cannabis company. It engages in the cultivation, processing, wholesale, and retail distribution of cannabis across several states. The company sells artisanal cannabis products for both medical and adult-use markets under Encore, Avexia, MUV, Savvy, BITS, and Verano brands.
VRNOF’s trailing-12-month gross profit margin of 48.96% is 12% lower than the 55.66% industry average. Also, its trailing-12-month net income margin of negative 30.61% compares to the negative 6.99% industry average.
VRNOF’s cost of goods sold increased 20.1% year-over-year to $122.59 million for the fiscal fourth that ended December 31, 2022. Its adjusted EBITDA decreased 3.6% year-over-year to $78.71 million. Also, the net loss attributable to VRNOF came in at $216.11 million.
Moreover, as of December 31, 2022, the company’s cash and cash equivalents stood at $84.85 million, compared to $99.12 million as of December 31, 2021.
Analysts expect VRNOF to report a loss per share of $0.11 for the fiscal year ending December 2023. Likewise, the company is expected to report a loss per share of $0.05 in the next fiscal year (ending December 2024). The stock has plummeted 41.3% over the past six months and 62.5% over the past year to close its last trading session at $2.98.
VRNOF’s POWR Ratings reflect this poor outlook. The stock has an overall D rating, translating to Sell in our proprietary rating system.
VRNOF has an F grade for Momentum and a D for Growth, Value, and Sentiment. It is ranked #140 among 165 stocks within the same industry.
In addition to the POWR Ratings I’ve highlighted, you can see VRNOF’s ratings for Stability and Quality here.
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CURLF shares were trading at $2.53 per share on Wednesday morning, down $0.10 (-3.80%). Year-to-date, CURLF has declined -41.13%, versus a 7.77% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
3 Cannabis Stocks to Avoid Despite the Legalization Momentum in 2023 StockNews.com
