Weed Wars: 3 of the Best Canadian Cannabis Stocks Go Head-to-Head

The Green Organic Dutchman Holdings Ltd. (TSX: TGOD) competes with two other Canadian weed stocks. Which one is the better buy?

| More on:

The TSX Index has been a destination for marijuana investors for a while now, and though the actual legalization of the drug didn’t have the explosive effect on the sector that some pundits had been predicting, the green gold rush is still underway.

With new investors and seasoned pros alike getting invested in Canadian cannabis, discussions about which stocks to buy seem to have centered around a core of now-familiar tickers. Below we will take a look at the market data and outlook for three of the best and see whether they belong in a new cannabis investor’s portfolio.

The low-risk, high-growth option

After a serviceable first-quarter earnings report, Green Organic Dutchman (TSX: TGOD) is still a solid buy and a strong addition to a Canadian cannabis portfolio. At $3.89 a pop at writing, Green Organic Dutchman is trading with a 31% discount off its fair value of $5.64, meaning that there is still some way to go before this stock hits its true potential.

The main reason why this stock is a lower risk than some of its competitors in the legal weed space isn’t just because it holds only 0.6% of debt compared to its net worth, as low debt is a characteristic of several of the top tier of Canadian pot producers. Green Organic Dutchman also has a longer cash runway – but we’ll come to that shortly.

Fair valuation can be seen in the discount mentioned above, and while a P/B of 2.6 times book may be high compared to somewhat more traditional stocks such as bankers and utilities, it’s not too mad a valuation compared to other high growth options. Speaking of growth, a 108.3% increase in earnings is expected over the next one to three years, making for a solid play in the legal weed space.

Two competitors with matching P/B ratios

With past-year returns of 81.4% HEXO (TSX:HEXO) is a popular and solid choice. Its price-to-book of 4.5 is higher than that of Green Organic Dutchman, though at $9.25, HEXO sells at a 19% discount off its future cash flow value, with some way to go before hitting a “fair” price just over the $11 mark. Boasting a balance sheet clear of debt and looking forward to a 63% projected earnings growth, HEXO is still a frontrunner.

Meanwhile, at $8.06 a share, CannTrust Holdings (TSX:TRST) is trading at a 32% discount off its fair value, which at $11.94 means that there’s potentially more upside to be squeezed from this weed producer than from HEXO. This may be backed up by a higher expected annual growth in earnings of 95.6%. However, it carries higher debt at 8.2% of net worth and saw negative one-year returns, making the previous stock a better buy of those metrics are more important to an investor.

The bottom line

With less than a year of cash runway based on their current free cash flows, both HEXO and CannTrust Holdings may be something of a risky investment, so would-be stockholders will have to weigh the potential for capital gains from both stocks and determine their appetite for risk. Green Organic Dutchman does not have this issue, however, with a 1.2 year cash runway covering a low level of debt. According to this metric, it’s a less risky play.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Victoria Hetherington has no position in any of the stocks mentioned.

More on Stocks for Beginners

The virtual button with the letters AI in a circle hovering above a keyboard, about to be clicked by a cursor.
Tech Stocks

Emerging Canadian AI Companies With Big Potential

These tech stocks are paving the way to an AI-filled future, but still offer enough growth ahead for a strong…

Read more »

Young Boy with Jet Pack Dreams of Flying
Tech Stocks

Is Constellation Software Stock a Buy, Sell, or Hold for 2025?

CSU stock has long been a strong option for high growth, high value stocks. But are there now too many…

Read more »

hand stacks coins
Dividend Stocks

3 Ultra-High-Yield Dividend Stocks You Can Buy and Hold for a Decade

These three high-yield dividend stocks still have some work to do, but each are in steady areas that are only…

Read more »

Asset Management
Stocks for Beginners

TFSA: 4 Canadian Stocks to Buy and Hold Forever

Thinking about what to buy with the new TFSA contribution space in 2025? These four Canadian stocks are worth holding…

Read more »

concept of real estate evaluation
Stocks for Beginners

2 No-Brainer Real Estate Stocks to Buy Right Now for Less Than $1,000

These two real estate sector-focused stocks have the potential to deliver strong returns on your investments in the coming years.

Read more »

engineer at wind farm
Energy Stocks

Invest $20,000 in This Dividend Stock for $100 in Monthly Passive Income

This dividend stock has it all – a strong outlook, monthly income, and even more to consider buying today.

Read more »

stocks climbing green bull market
Stocks for Beginners

3 TSX Stocks Soaring Higher With No Signs of Slowing

Don't ignore stocks just because they look like they're at a high price. Instead, see exactly why they've driven so…

Read more »

Middle aged man drinks coffee
Dividend Stocks

Here’s the Average TFSA Balance at Age 35 in Canada

At age 35, it might not seem like you need to be thinking about your future cash flow. But ideally,…

Read more »