Will these 3 Cannabis Stocks Regain Momentum in 2020?
The last eight months have been an absolute catastrophe for the cannabis sector. Several cannabis and hemp stocks have lost more than 50% and most of their market value since the COVIID crisis shook the markets in March. Market volatility, lack of profitability, regulatory uncertainty, and thriving black markets have slashed the value of many cannabis stocks more than 50% for the year – but will these 3 cannabis stocks regain momentum in 2020?
The recent round of quarterly results did indicate that some cannabis companies are bouncing back to profitability and better share market performance. However, certain cannabis and hemp stocks have been badly battered – causing investors to lose faith. There are 3 specific cannabis stocks that have lost more than 50% of their value this year but still may have the opportunity to gain momentum – allowing investors to capitalize on their current value and trajectory.
Tilray: Ensuring profitability is key for gaining momentum
Tilray (NASDAQ: TLRY) is one cannabis stock that has plunged nearly 60% amid deep losses as well as the existential cannabis sector volatility. In its latest Q2 results, the performance of the cannabis segment has been encouraging, especially in the international medical segment. But will this cannabis stock regain momentum in 2020?
The net loss per share stood at $0.66 against $0.37 in Q2 last year. It also missed the market expectation of a net loss of $0.39 per share. Tilray’s adjusted EBITDA loss stood at $12.3 million, which indicated an improvement compared to the prior-year period. Cost reductions and operational efficiency helped Tilray improve EBITDA margins.
The decline in Tilray’s revenue was attributable to the operational inefficiencies and tepid demand due to the COVID-19 pandemic. Some of the retail outlets of Tilray closed down amid the pandemic. Notably, the second-quarter revenue of the pot producer also trailed market expectations.
Another major constraint for Tilray is that most of its operations are focussed only in Canada. Unless the company also expands its operations in the EU, which is the world’s largest medical marijuana market, its growth could remain stunted.
On the brighter side, Tilray ended Q2 with $137.2 million in cash, which according to the company, has been a significant improvement. The cash position also indicated a slower rate of burnout. Tilray refrained from issuing guidance amid the growing uncertainty, however, it anticipates a margin improvement by 100-200 basis points.
The company is under pressure and has a long way to go before it reaches profitability. The pot producer has to now focus on geographical expansion, overhead cost reduction, and stronger cannabis demand before we see an actual play in this cannabis stock.
HEXO: Weighed down by dilution of equity and market uncertainty
Hexo (NYSE:HEXO) is a penny pot stock that has experienced plenty of hardship this year. Hexo has plummeted nearly 56% since January and is currently trading at $0.72. Investors were relieved to see its third-quarter results that were better-than-expected compared to consensus estimates but will this cannabis stock regain momentum in 2020?
The company recently announced that revenue climbed 30% YoY this past quarter. Meanwhile, its adjusted EBITDA loss also decreased. Hexo attributes the strong performance to its freshly launched hash and oil extract drops as well as sales from its Original Stash brand.
The company has several issues to tackle which will mean Hexo stock may remain stagnant in the near-term. There are fundamental issues of equity dilution as well as a weak cash position with this cannabis stock. Like many other cannabis stocks, Hexo is also dealing with bottlenecks in the supply chain due to the ongoing COVID-19 pandemic.
However, amid all this, the company has its focus on expanding its international footprint. Hexo sold its Niagara facility to finance the expansion of its Ontario unit. The company also entered into a partnership with Molson Coors in April this year to focus on market prospects for non-alcohol hemp-based CBD beverages.
Coors chose Colorado as a preferred location due to its regulatory framework for CBD products. Hexo and Coors already have a venture known as “Truss Beverages” that explores non-alcoholic, hemp-based drinks in Canada.
In a critical development, last month, HEXO ventured into Israel. It launched medical cannabis products in Israel markets, which makes it evident that the hemp stock is pretty serious about expanding its international footprint. If done successfully, this would translate to an increase in share prices.
As one of the largest companies in the recreational marijuana space, Hexo, has officially agreed to supply 200,000 kilograms of recreational cannabis to the Quebec province.
Being a penny cannabis stock, Hexo has its own share of risks. It has already diluted shareholder wealth and experts believe that it must opt for a reverse stock-split to save itself from being delisted on the NYSE. We don’t anticipate any strong movement in this stock for 2020.
CannTrust: Solving regulatory issues is paramount
CannTrust (OTC: CNTTQ) stock was in a tailspin after it was accused of growing cannabis at unlicensed facilities in Ontario. The regulatory issues led the stock to plunge nearly 75%. Subsequently, shareholders filed a class-action lawsuit and its operational license was suspended. The company officially stopped harvesting and selling cannabis apart from its existing plants. It officially filed for bankruptcy on March 31, 2020. It seems as though Canntrust has hit the bottom – but will this cannabis stock regain momentum in 2020?
Failure to comply on regulatory grounds has put CannTrust in a tight spot. Moreover, the cannabis stock’s revenue hasn’t been significant. Earlier this month, Health Canada has allowed CannTrust to reinstate its licenses for its Vaughan Manufacturing Facility.
This is a crucial development for the company but it has an uphill task to rebuild its business. The CEO of CannTrust, Greg Guyatt, stated, “Today marks the beginning of the next chapter in CannTrust’s history.” Even investors are very optimistic about its renewal of the license.
On the day of the announcement, the stock soared about 38% on the OTC market in a single trading day. The pot stock has been seriously trying to resolve regulatory compliance issues during the past twelve months. Thus it remains to be seen if CannTrust is able to bring itself out of this predicament and win over the trust of its investors. Thus, we’re unsure if this cannabis stock will regain any significant momentum in 2020.
Will these 3 Cannabis Stocks Regain Momentum in 2020?
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