It’s been five years since Canadians added marijuana to the list of legalized substances in the country. And yet, who could have known that cannabis stocks, once the highest of high-flying investments, would crash so low?
Now, five years later, what can Canadians expect from cannabis stocks in November 2023?
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Eye on the U.S.
The United States continues to be top of mind for investors in cannabis stocks. There was a massive number of cannabis companies that came on the market after Canadian legalization. Yet most have since been eaten up by larger cannabis companies. Now, these companies are waiting for one thing: legalization across the U.S.
And that’s going to likely become a key topic in the coming year. One year from now, we’re going to be going into election season across the border. So, as this last year begins, the topic of legalization is bound to heat up.
For now, legalization in the U.S. remains elusive. However, the majority of states have legalized marijuana, at least in some form, either for medicinal or recreational purposes. Furthermore, cannabis companies are now allowed to work with banks — something that eluded the industry until quite recently.
Fewer losses
After the drop in cannabis stocks and the pandemic closing down locations, cannabis stocks are also now looking to get back to profits. And in fact, one company has already done just that. Tilray (TSX:TLRY) recently announced its earnings results, with lower losses and increased revenue coming in.
During its earnings report, the company posted net revenue of US$177 million, up 15% year over year in the first quarter. Furthermore, it continues to acquire brands that are actually outside the core cannabis business. This included eight beer brands from Anheuser-Busch, with the acquisition completed last month.
Other growth to come?
Tilray stock saw growth during this most recent earnings report. However, others are set to start reporting as well. This includes Canadian cannabis company Canopy Growth (TSX:WEED). Shares of the stock have dropped below $1 for quite some time now. So, investors will be waiting to see if shares will surge past that point once again when earnings come out on Nov. 9.
Until then, we can look at past results for some clues as to future growth. Net revenue increased just 3% year over year during the first quarter of the full year 2024. However, adjusting for the divestiture of Canadian cannabis retail operations, net revenue was up 16% year over year.
The stock also achieved $172 million in cost savings through the first quarter. It now expects positive adjusted earnings before interest, taxes, depreciation and amortization in all business units in the full year 2024, except for BioSteel, where funding has stopped.
Bottom line
Cannabis stocks remain a pretty scary place at this point. Investing in the sector long-term could certainly achieve gains, especially with shares so low. However, it’s providing a ton of volatility during this market.
It might be better to invest in cannabis-adjacent stocks or even exchange-traded funds that have exposure to the area rather than the stocks themselves. However, it has to be said that when the U.S. does legalize cannabis, we could go through the same amount of growth we saw just five years ago.
