Aurora Cannabis and Canopy Growth: 2 trending pot stocks on TSX

(Feature Image source: Twitter/ @Aurora_MMJ and @CanopyGrowth)

Summary

• Several cannabis stocks are among the most actively traded companies on the TSX in 2020.
• However, cannabis stocks have not managed to turn their fortunes around, most shares still trying to recover from the losses generated due to the pandemic.
• But investors continue to be bullish on pot stocks because of Cannabis 2.0 and future potential markets.
• We look at two pot stocks – Aurora Cannabis and Canopy Growth – that are trending in the equity markets.

Cannabis stocks have been an investors’ darling in the last six months, despite recent data from Health Canada indicating that the marijuana recreational market may be plateauing. Pot stocks such as Aurora Cannabis, Canopy Growth, Aphria and HEXO have been trending high on the Toronto Stock Exchange, often listed among the most actively traded companies on the equity market.

On the TSX Venture market too, an influx of pot firms has continued since Canada’s recreational marijuana legalization. In 2020, a total of 50 cannabis firms raised funds on the junior Canadian stock exchange including 17 total private placements and 33 public offerings.

Only if popularity could result in returns!

Performance of cannabis stocks this year on the key TSX index has been disappointing. The S&P/TSX Cannabis index has declined by 36.85 percent this year, as compared to the S&P/TSX Composite Index which declined by 2.85 percent and the S&P/TSX Venture Composite Index that gained 28.12 percent in the same period.

(Source: S&P Global)

So why are investors still bullish on marijuana stocks despite the sluggard performance?

Because of Cannabis 2.0 and potential markets.

Most analysts believe turnaround of marijuana stocks is just a matter of time as more countries start legalizing medical or recreational weed. Several US states have already legalized it and more changes are expected in near future as the country gears up for presidential polls in November. Many US-based pot firms that cannot list on their country indices have turned to small-cap Canadian bourses. The global pot market is estimated to hit US$ 97.35 billion by 2026. In short, there’s a growing market potential to be tapped in the coming decades as countries worldwide embrace marijuana and relax their rules.

The other reason for investors’ bullishness is the new and improved Cannabis 2.0 market in Canada that aims to solve the supply chain hiccups assisted with better federal laws.

Let’s a take a look at two cannabis stocks that have been trending this year.

Aurora Cannabis (TSX:ACB)

Analysts reviews have been mixed for Aurora Cannabis stocks, some presenting glowing recommendations and others doubting the shares comeback in near term.

Shares of this medicinal and recreational cannabis company have declined by 60 percent this year. The figures are not encouraging on quarterly and monthly scales too. The stocks have shed 34 percent of its value in three months and 15 percent in one month.

But on the decade scale, Aurora Cannabis stocks have grown by a massive 3500+ percent – an impressionable feat. During the ‘Green Rush’ of 2018, when Canada legalized weed and the equity markets witnessed FOMO-style investment in cannabis, the company’s scrips surged by over 45,000 percent in mere four years (going from C$ 0.36 in May 2014 to C$ 164.52 in October 2018).

It soon came crashing down during the cannabis market correction of 2019 and furthered suffered during the pandemic market crash. In the last two years (from October 2018 to August 2020), Aurora stocks have lost over 97 percent of its value.

But investors are hopeful Aurora will make a comeback, based on a series of business decisions in recent quarters.

The company has entered the US cannabidiol (CBD) markets with the acquisition of Reliva for approximately US$ 40 million.

In the company’s third quarter report (ending March 31, 2020), the net revenues grew by 18 percent quarter-over-quarter to C$ 78.4 million. Its cash position of also improved by 43 percent quarter-over-quarter to touch $230.2 million in Q3.

Aurora also presented a business transformation and restructuring plan to investors, which included reducing employee headcount, cutting costs, consolidating production with ceasing operations at five facilities and focus on gross margins.

Canopy Growth Corporation (TSX:WEED)

Another heavyweight by market cap on the cannabis stock index, shares of Canopy Growth have lost 18 percent value year-to-date. The stocks also declined by 4 percent in a month and 7 percent in a quarter.

Like Aurora, Canopy Growth also gained during the ‘Green Rush’, its shares posting over 9700 percent returns in eight years. But it soon came crashing down, the scrips value eroding by nearly 70 percent since September 2018.

The company’s net revenue increased by 22 percent year-over-year to touch C$ 110 million in first quarter fiscal 2021 (ending June 30, 2020).

Canopy Growth has stepped up activities in the US market to drive revenue and launched ecommerce site shopcanopy.com, which serves as one-stop shop for CBD products.

The company was among the early movers in the Canadian cannabis market, which has helped it turn into a global brand. Its core markets are in US, Canada and Germany. The global cannabis TAM (total addressable market) is expected to hit S70 billion by 2023 and Canopy is likely to emerge as a dominant player in that market space.