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Marijuana Investors: Forecast in May amid COVID-19

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Marijuana sales have seen a drastic surge since the COVID-19 pandemic hit. There was a sigh of relief in the sector. Notably, the cannabis sector suffered many blows in 2019. Lower earnings, management changes, rising black market sales, legalization challenges, and many other factors impacted the industry last year. The pandemic might help the sector recover its losses. Will the improvement be a one-time surge in sales or will the higher sales last?

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Cannabis stocks’ performance in April

In April, Aphria reported impressive third-quarter results. The company continued to show positive EBITDA profitability of 5.7 million Canadian dollars in the quarter. The revenue was also higher than analysts’ estimates. Aphria’s balance sheet is strong despite the industry’s financial struggles. OrganiGram has been performing well. However, the company’s second-quarter earnings weren’t impressive due to various factors.

The surge in cannabis sales is also attracting attention. The Financial Times reported that High Times cannabis magazine is buying 13 Harvest Health & Recreation’s California dispensaries to take advantage of the growing cannabis industry in the US. The deal could close by June. In California, sales have increased by 159%, according to data by Headset. Cannabis is known to help people with anxiety. Amid the pandemic, people see cannabis as an option to help them relax and reduce their uneasiness and anxiety. Besides, medical cannabis is also a preferred medicine for many other diseases. Jefferies equity research suggests that the legal market for cannabis could reach $50 billion by 2029 from $11 billion in 2018.

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US marijuana companies have outperformed Canadian peers

Marijuana sales have risen drastically in the US and Canada amid the coronavirus pandemic. US cannabis companies performed well in April compared to their Canadian cannabis peers. Cresco Labs’ (OTCMKTS:CRLBF) fourth-quarter earnings came in stronger. Curaleaf and Charlotte Web Holdings’ earnings results were also good in the recent quarter. However, many smaller US cannabis companies are struggling to find emergency financial aid since marijuana isn’t legal.

What to expect in May?

We still don’t know how COVID-19 will impact marijuana companies. We can expect cannabis sales to keep rising in May if the pandemic continues and lockdowns and stay-at-home orders remain. Most of the cannabis companies have ensured that they will be able to meet the demand amid the pandemic without production getting hampered. We’ll know more about the impact of the pandemic when bigger players report their earnings this month. Analysts expect marijuana companies to bounce back in 2020 due to Cannabis 2.0 products.

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Aurora Cannabis (NYSE:ACB) and Canopy Growth (NYSE:CGC)(TSE:WEED) could report their results this month. Canopy Growth reported strong third-quarter results. Analysts expect the company’s revenue to be around 129.6 million Canadian dollars for the fourth quarter. Canopy Growth could report a decline in the EBITDA loss sequentially. However, the EBITDA loss could be around 87.5 million Canadian dollars in the fourth quarter.

Aurora Cannabis’ performance is going downhill. The company reported disastrous second-quarter results in March. Also, the company announced a reverse stock split to save its stock from delisting. Analysts expect a slight growth of 1.6% YoY in Aurora Cannabis’s revenue for the third quarter to 66.2 million Canadian dollars. However, the EBITDA could still be negative around 40.5 million Canadian dollars.

Innovative Industrial Properties (NYSE:IIPR) will also report its earnings this month. Although the company isn’t a conventional marijuana stock, it has been performing well.

Marijuana stock performance in April

Marijuana legalization efforts in the US have also slowed down due to the pandemic. More states legalizing cannabis might have helped marijuana companies this year. In my opinion, marijuana stocks are still a “hold” in May until we know more. However, I think that Canopy Growth, OrganiGram, and Aphria are viable options in the marijuana sector if you’re looking for long-term growth. Cronos Group could also benefit from its Altria deal and its wider range of vape products.

In April, Canopy Growth, Aphria, Cronos Group, Tilray, and IIPR gained 11%, 17%, 5%, 17%, and 3%, respectively. Meanwhile, Aurora Cannabis, OrganiGram, and Hexo have fallen by 18%, 21%, and 39%, respectively.

Stay with us to learn more about the marijuana industry.

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