The cannabis industry is attracting significant investor attention on hopes surrounding a GOP-led effort to legalize marijuana at the federal level. However, the health risks associated with cannabis use in adolescents raise questions about marijuana consumption. Furthermore, the FDA has approved only four cannabis drug products to date. There is no cannabis-based animal or food product that the FDA has approved. Also, there are numerous hemp-derived CBD products on the market that are not approved by the FDA for human or veterinary use.
Several challenges, including restricted access to capital and a federal criminal statute surrounding cannabis' production and distribution, could impede the industry’s growth. On the other hand, with cannabis industry laws becoming gradually more accommodating, more players are entering this space, making the industry highly competitive. So, not all cannabis operators are well-positioned to withstand the challenges and survive in a heavily competitive market.
Given this backdrop, we think it could be wise to avoid fundamentally weak cannabis stocks Curaleaf Holdings, Inc. (CURLF) and Aurora Cannabis Inc. (ACB). These companies have also missed sales estimates in their recently released results.
Click here to check out our Cannabis Industry Report for 2021
Curaleaf Holdings, Inc. (CURLF)
CURLF is a vertically integrated cannabis operator in the United States that researches and develops capabilities to distribute cannabis products. The Wakefield, Mass.-based company operates in two segments--Cannabis Operations and Non-Cannabis Operations. Through its Curaleaf Hemp brand, the company provides service across the medical and adult-use markets and the cannabidiol (CBD) category.
CURLF’s total revenue increased 73.9% year-over-year to $317.13 million for its third quarter, ended September 30, 2021, but missed the $331.37 million consensus estimate by 4.3%. However, the company’s net loss grew 563.8% from its year-ago value to $59.28 million. And its net loss attributable to Curaleaf Holdings, Inc. rose 509.2% from the prior-year quarter to $56.92 million. Also, the company’s operating income decreased 22.9% sequentially to $39.99 million.
CURLF’s EPS is estimated to decrease 197.8% in the current year. The company has failed to beat the consensus EPS estimates in each of the trailing four quarters. The stock has lost 26.7% in price over the past six months and 38.3% over the past nine months.
CURLF’s POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, equating to Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
Also, the stock has an F grade for Growth, and a D grade for Value and Sentiment. We have also graded CURLF for Quality, Momentum, and Stability. Click here to access all CURLF’s ratings. CURLF is ranked #183 of the 201 stocks in the F-rated Medical – Pharmaceuticals industry.
Aurora Cannabis Inc. (ACB)
Headquartered in Edmonton, Canada, ACB is a medical cannabis company that produces various strains of dried cannabis, cannabis oil and capsules, and topical kits for medical patients. The company markets its products under the Aurora, Aurora Drift, San Rafael '71, Daily Special, MedReleaf, CanniMed, Whistler, Reliva, and KG7 CBD brands. Also, ACB sells vaporizers and herb mills for using CanniMed herbal cannabis products.
This month, Aurora Nederland B.V.,a subsidiary of ACB, agreed to invest in a significant equity stake in Netherlands-based Growery B.V., a license holder entitled to participate in the Controlled Cannabis Supply Chain Experiment. ACB's investment in Growery is structured such that ACB will invest an immaterial cash amount of which a portion is due and payable upfront. Although ACB can advance significantly in its global recreational cannabis strategy through this investment, it could also weigh heavily on its expenses in the coming months.
During its fiscal first quarter, ended September 30, 2021, ACB’s total net revenue decreased 11.1% year-over-year to CAD60.11 million ($47.95 million), missing the consensus estimate by 2.2%. The company’s revenue under its consumer cannabis segment declined 44.3% from its year-ago value to CAD19.12 million ($15.26 million). Its negative adjusted EBITDA came in at CAD12.1 million ($9.66 million) during the period.
ACB’s EPS is expected to remain negative next year. The company has failed to surpass the consensus EPS in three of the trailing four quarters, and the stock has declined 39.7% in price over the past nine months.
ACB’s poor prospects are also apparent in its POWR Ratings. The stock has an overall F rating, which equates to a Strong Sell in our proprietary rating system. Also, the stock has a D grade for Stability, Momentum, and Quality.
In addition to the POWR Rating grades I have just highlighted, one can see ACB’s ratings for Growth, Value, and Sentiment here. ACB is ranked #196 in the Medical – Pharmaceuticals industry.
Click here to check out our Cannabis Industry Report for 2021
CURLF shares were trading at $10.15 per share on Wednesday morning, up $0.20 (+2.01%). Year-to-date, CURLF has declined -15.22%, versus a 26.32% rise in the benchmark S&P 500 index during the same period.
About the Author: Priyanka Mandal
Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research.
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