Avoid These 2 Cannabis Stocks Wall Street Hates


Optimism about the potential for further legalization of marijuana in the US – including at the federal level – has significantly improved the outlook for cannabis companies this year. But while most cannabis operators are well positioned to benefit from the growing domestic and international marijuana market, some companies seem to have lost momentum due to fierce industry competition.

As legalization efforts gain momentum, several new players from Canada and the United States are starting new cannabis operations. This has dramatically increased the level of competition in the cannabis space.

Against this background, Wall Street analysts are extremely pessimistic about the outlook for Aurora Cannabis Inc. (ACB) and Sundial Growers Inc. (SNDL). Both companies are struggling to stay afloat financially. And with their fundamentals being weak and losses high, we think it would be wise to avoid them now.

Click here to read our Cannabis Industry Report for 2021

Aurora Cannabis Inc. (ACB)

Canada-based ACB is a global manufacturer and distributor of medical cannabis products. The company develops oral, topical, edible and inhalable products, as well as sealable containers for grinders and vaporizers. Services include patient counseling, design and engineering, and cannabis analytical product testing.

ACB’s sales fell 25% to 55.16 million years in the third fiscal quarter ended March 31, 2021. In addition, ACB’s net loss for the period was $ 164.65 million ($ 132.86 million) and its gross loss for the quarter was $ 85.46 million ($ 68.85 million) compared to gross income of $ 19.65 million ($ 15.83 million). in the first quarter of 2020.

Analysts expect ACB revenue to drop 1.4% year over year to $ 206.78 million in fiscal year ended June 2021. The stock is down 27.6% last year and 8.1% last month.

ACB’s POWR ratings are in line with this dire outlook. The stock has an overall rating of F which results in a strong sell in our proprietary rating system. The POWR ratings rate stocks based on 118 different factors, each with its own weighting.

The stock also has an F rating for Sentiment and a D rating for Momentum and Quality. Within the F-rated medical-pharmaceutical industry, it ranks 225 out of 225 stocks. To see more about ACB’s component grades, click here.

Of the eleven Wall Street analysts who rated the stock, seven rated it a sell. After closing yesterday’s trading session at $ 8.88, analysts’ average target of $ 6.74 translates into a potential decline of 24.1%.

Sundial Growers Inc. (SNDL)

SNDL produces, distributes and sells medical cannabis and adult cannabis. The company’s cannabis products are used as medicinal drugs and to enhance social, spiritual and recreational experiences. Sundial Cannabis branded dried flower cannabis products are available in a variety of formats including pre-rolls, oils, capsules, and sublingual.

In May, SNDL and Inner Spirits Holdings Ltd. closed entered into an agreement whereby SNDL will acquire all of Inner Spirit’s issued and outstanding common stock for approximately $ 131 million. The combination could diversify SNDL’s portfolio and strengthen its business prospects, but it will result in a decrease in SNDL’s cash position after the combination.

SNDL net sales for the first quarter ended March 31, 2021 decreased 29.4% year over year to $ 9.89 million ($ 7.98 million), primarily due to lower sales volume. The negative gross margin in the cannabis segment for the period was $ 3.45 million ($ 2.78 million). The company’s net loss from continuing operations increased 205.7% year over year to $ 134.45 million ($ 108.45 million), while loss per share for the period rose to $ 0.09 million ($ 0.07 million) . USD) amounted.

The company has a bad track record with surprises; it has failed to beat consensus EPS estimates for any of the past four quarters. A consensus revenue estimate of $ 45.34 million for the current year represents a decrease of 10.2% over the same period last year. The stock is down 28.7% last month and 16.4% over the past three months.

The poor outlook for SNDL is also reflected in the POWR ratings. The stock has an overall rating of F, which is a strong sell in our proprietary rating system.

The stock also has an F rating for Value, Momentum and Quality. Click here to see the additional POWR ratings for SNDL. (Growth, stability and mood). SNDL ranks 221 out of 225 stocks in the medical-pharmaceutical industry.

The only Wall Street analyst to rate the stock has given it a “Hold” rating. Analysts’ target price of $ 0.70 is currently trading at $ 0.92, a potential decline of 23.9%.

Click here to read our Cannabis Industry Report for 2021

ACB shares traded at $ 8.68 per share on Friday morning, down $ 0.20 (-2.25%). Since the beginning of the year, the ACB is up 4.45%, compared to a 16.28% increase in the reference index S&P 500 over the same period.

About the author: Pragya Pandey

Pragya is a stock research analyst and financial writer with a passion for investing. In college, she studied finance and is currently pursuing the CFA program and is a Level II candidate. More …

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