2 Weed Stocks to Flat-Out Ignore in 2020

If you are looking to buy into the green industry of cannabis this year, you may want to stay clear of CannTrust Holdings stock and Namaste Technologies stock.

| More on:

2020 might turn out to be a green year for the green industry of cannabis. How far the cannabis companies will go is hard to predict. Recreational marijuana products like edibles, beverages, and vapes give the legal marijuana industry an edge over the black market. But in terms of the per gram price of weed, the industry is still struggling and will most likely keep struggling for a while more against the black market.

That being said, the chances that most players in the cannabis industry will find their groove this year are much higher than last year. But not all cannabis stocks stand an equal chance of recovery. Some might even be downright risky. Two weed stocks that you may want to avoid this year are CannTrust Holdings (TSX:TRST)(NYSE:CTST) and Namaste Technologies (TSXV:N).

A tiny medical cannabis company

CannTrust is a small medical cannabis company, with a current market cap of $168.8 million. Despite having one of the largest and advanced greenhouses in North America, the company didn’t show adequate resilience in last year’s carnage of the cannabis industry. The stock fell over 80% last year, and it’s still not showing signs of gaining upward momentum.

CannTrust suffered some serious legal and trust issues past year. The company had to destroy about $90 million worth of cannabis products because of the unlicensed cultivation rooms that the company was running. But the financial blow was nothing compared to the loss of investor trust the company suffered. The CEO and president were fired as a consequence of this legal debacle.

A small market cap company that is rife with legal problems and still struggling to get production licences back in order is unlikely to ride the momentum cannabis industry is expected to achieve in 2020. It might be prudent to stay your hand from this stock and check back on it next year.

A techy cannabis company

Namaste Technologies, a company with plans to become the Amazon of the cannabis industry, doesn’t seem to be delivering on its prospects. The company reported a profit margin of negative 262% and an EBITDA of negative $38 million. The company is trading at a yearly low of $0.35 per share, which is the result of 76% depreciation in one year.

Namaste Technologies is also a small company with a market cap of only $113.3 million as of now. The company has a diversified cannabis operation and impressive global reach, but the company’s balance sheet and returns don’t reflect its online growth.

As a tech company, the company might have strayed from an unrewarding cannabis industry, but it didn’t. This refusal to deviate from a path with an uncertain destination might pay off sometime in the future, but the chances of it happening in 2020 do not seem very high.

Foolish takeaway

Whether or not 2020 will be the year for the cannabis industry is yet to be seen. But like any potentially recovering sector, there are players that you might want to bet on, hoping for an impressive recovery. Similarly, there are stocks that, even at dirt cheap, might not get you the returns you hope for. CannTrust and Namaste Technologies might be such stocks.

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.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Adam Othman has no position in any of the stocks mentioned. David Gardner owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends CannTrust Holdings, CannTrust Holdings Inc, and Namaste Technologies.

More on Cannabis Stocks

Cannabis business and marijuana industry concept as the shadow of a dollar sign on a group of leaves
Cannabis Stocks

Should You Buy Canopy Growth Stock or Green Thumb Stock Today?

Let's dive into two cannabis giants, and which one may be the better pick for long-term investors.

Read more »

Farmer smiles near cannabis crop
Cannabis Stocks

Could Aurora Cannabis Stock Finally Recover by Year-End?

Down 99% from all-time highs, Aurora Cannabis stock is focused on improving profit margins and expanding sales of its medical…

Read more »

Farmer smiles near cannabis crop
Cannabis Stocks

Are Pot Stocks About to Surge Again? 

With pot stocks making big moves of late, many investors are now asking whether the cannabis sector is worth investing…

Read more »

Farmer smiles near cannabis crop
Cannabis Stocks

Can Pot Stocks Aurora Cannabis and Canopy Growth Bounce Back in Q4?

Down over 99% from all-time highs, Canadian pot stocks such as Aurora Cannabis and Canopy Growth remain high-risk bets.

Read more »

Worker tags plants at an industrial cannabis operation
Cannabis Stocks

Can Canopy Growth Stock Finally Recover in 2024?

Down 98% from all-time highs, Canopy Growth remains a high-risk investment in 2024 given its weak fundamentals.

Read more »

Tech Stocks

3 No-Brainer Stocks to Buy With $20 Right Now

These three stocks are easy buys for those who don't have all that much to spend, and want long-term growth…

Read more »

Pot stocks are a riskier investment
Cannabis Stocks

Slow Burn: Is Aurora Cannabis Finally a Good Buy in June?

One of the benefits of choosing from some of the most beaten-down market segments like cannabis is that even a…

Read more »

Caution, careful
Cannabis Stocks

I Wouldn’t Touch This TSX Stock With a 60-Foot Pole

I wouldn't touch Canopy Growth Corp (TSX:WEED) stock with a 60-foot pole.

Read more »