Marijuana stocks were on a rollercoaster ride in March. After struggling in 2019, the marijuana sector didn’t start 2020 on a good note either. The Horizons Marijuana Life Sciences ETF (TSE:HMMJ) tracks the North American cannabis industry. HMMJ fell by 18.8% in March. Overall, the month didn’t start off well for the cannabis sector even before the coronavirus pandemic hit. Surprisingly, while COVID-19 has impacted other sectors, it has helped the cannabis sector. The demand for cannabis increased and sales rose. Cannabis stocks’ performance also improved. Let’s take a look at how cannabis stocks performed in March. What can investors expect from marijuana stocks in April?
Marijuana stocks’ performance in March
The bigger players in the cannabis space have been suffering for a while. Even though marijuana is legal in Canada, the slower roll-out of stores in the three largest provinces led to lower sales. Canada legalized edibles, vapes, and other recreational marijuana products in October 2019. Cannabis 2.0 products hit the market in late December 2019 and the beginning of 2020. Analysts and investors hoped that Cannabis 2.0 product sales would drive sales higher and help the sector rebound. However, the slow store roll-out has been an issue even this year. The sector continues to face a serious financial crisis. Many smaller cannabis companies were on the verge of bankruptcy, while bigger companies were struggling to hit profitability. Then, the coronavirus pandemic hit. So far, COVID-19 has helped marijuana sales soar. The coronavirus has also driven cannabis stocks’ performance.
Aurora Cannabis (NYSE:ACB) is one of the prominent players in the cannabis space. The company has been struggling for a while with its debt crisis and failure to hit profitability. The stock kept hitting lows. So far, the stock has lost 62.5% of its market value in 2020. Investors have lost confidence in Aurora Cannabis since its disastrous second-quarter results. Right now, analysts don’t think that the stock is a good buy.
Canopy Growth (NYSE:CGC)(TSE:WEED) has also been struggling with lower revenues and profitability. However, the company has a strong financial back up with Constellation Brands. Along with Constellation, Canopy’s cannabis-infused beverage could be popular after things settle down. Canopy temporarily closed all of its company-owned Tokyo Smoke and Tweed retail stores. The company started an e-commerce platform to meet the current demand. Canopy Growth can survive short-term struggles and hit profitability sooner. Overall, I think that Canopy Growth is a good stock.
Cronos and Hexo’s earnings dragged down the sector
Cronos Group (NASDAQ:CRON) reported dismal fourth-quarter earnings at the end of March. The results dragged down the stock. The company missed analysts’ revenue estimates by a huge margin. Also, the company’s EBITDA losses were higher than analysts’ expectations. Cronos Group isn’t certain about its growth in fiscal 2020 due to the pandemic. MedMen also withdrew its guidance due to the pandemic.
Hexo posted disappointing results for the second quarter of fiscal 2020. The company’s revenue was below analysts’ estimates. Hexo reported an EBITDA loss of 10.3 million Canadian dollars with a bleak outlook for fiscal 2020. After the results, a few analysts downgraded Cronos Group stock and reduced its target price. Analysts did the same for Hexo stock as well. In contrast, some analysts are hopeful about companies like Aphria and OrganiGram. Recently, Bank of America upgraded Aphria and OrganiGram based on the demand for cannabis.
OrganiGram received an expansion license from Health Canada for its Phase 5. Financially, Aphria and OrganiGram are in a good cash position to survive the short-term struggles. OrganiGram’s first-quarter earnings were also impressive compared to its peers.
In March, Aurora Cannabis and Canopy Growth lost 32% and 23%, respectively. Meanwhile, Hexo, Aphria, Cronos Group, and OrganiGram lost 23%, 16%, 3%, and 9%, respectively.
What lies ahead for cannabis stocks in April?
Is this sudden surge in sales a one-time thing due to the pandemic? I think that the sudden surge in marijuana demand and sales show that cannabis is an essential item. Now, lawmakers in many states might understand that cannabis is important and reconsider their stance on legalization. The COVID-19 lockdown impacted legalization efforts in some states like Idaho, Massachusetts, and New York. Some other states like Missouri, Arizona, and South Dakota are still moving ahead with their legalization plans.
Currently, analysts have a bearish view of cannabis stocks. In my opinion, cannabis stocks are a “hold” right now. We don’t know when the pandemic will end. Marijuana sales are still rising. Canada and many US states have declared that marijuana is an essential item. However, if the pandemic continues, production could halt and legalization efforts would slow down. The cannabis industry is already struggling to get business relief from the federal government. Lay-offs are happening, so the sector’s struggle continues.
As of April 3, Aurora Cannabis stock has fallen 10%, while Canopy Growth has fallen 8.1%. Cronos Group and Hexo have fallen 2.6% and 19.3% in April. Meanwhile, Aphria and OrganiGram stock have fallen 7.8% and 20%, respectively. We’ll have to wait and see how April unfolds for the sector.
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