Investing takes time, patience and enough money to ride out ebbs and flows. The marijuana industry is expected to perform well and thrive, but that’s the long game. In order for cannabis stocks to thrive, long-term, it’s going to take a robust influx of cash in order to counteract aggressive spending and losses.
Multiple forecasts from Wall Street imply that global cannabis sales could grow from $10.9 billion in 2018 to upwards of $50 billion to $200 billion — within ten years. For savvy investors, that growth and those numbers are hard to pass up. However, the fledgling industry is new, and it takes time for companies to mature and find a solid foundation. Current industry challenges include supply issues, high tax rates and a prolific black market in the U.S., and many cannabis stocks are losing money — trends that could continue throughout most of 2020.
Based on recent quarterly reports, these five marijuana stocks are some of the hottest in the industry.
Aurora Cannabis, Canada’s largest marijuana producer, has cash aplenty at its disposal — approximately C$391.5 million. While that figure includes around C$43.6 million in restricted cash, those are numbers from their balance sheet circa March 31, 2019, and that figure has most likely changed quite dramatically since that point.
While cash is king for marijuana stocks, in this case, a mountain of cash isn’t necessarily essential in Aurora’s situation. In April, Aurora filed a shelf prospectus that could allow the company to raise up to $750 million (U.S.) through various means within a 25-month period from the offering date.
While Aurora has made more than a dozen acquisitions over the last three years, the company is known for funding most deals solely by issuing shares of its stock — the exception being the purchase of CanniMed in early 2018.
With a ton of cash and short-term investments, it’s no surprise that this company has more cash at its disposal than any other company, with $2.36 billion in its coffers. The bulk of that cash is due to a $4 billion equity investment from Modelo and Corona beer maker Constellation Brands, giving it a 37% equity stake in the largest marijuana stock in the world. Canopy also sold C$600 million in convertible notes in June 2018.
On the flip side, money is being spent. Canopy Growth is investing and expanding, with an agreement to acquire Acreage Holdings, a Colorado-based intellectual property company, and is on track to spend $150 million on a hemp-processing facility in New York State.
Hot on Canopy’s heels is Cronos Group. Including short-term investments, as of June, the company had approximately $1.74 billion at its disposal. Cronos recently announced that the acquisition of Redwood Holdings is being funded with a whopping $225 million in cold, hard cash. That cash pile is due to a $1.8 billion equity investment from tobacco giant Altria. In March, Altria took a 45% equity stake in Cronos in exchange for the investment.
While not as flush with cash as Canopy, their cash is a huge reason why the market cap has held up as well as it has — we’re talking to the tune of $4 billion. While Cronos is losing money, the deal with Redwood gives Cronos control of the Lord Jones topical brands.
By market cap, GW Pharmaceuticals is the largest cannabinoid-based drug developer in the world. And that doesn’t count huge capital reserves tucked away, which is anticipated to fund research and new therapy development.
The bulk of their cash was from a sale of 1.9 million shares of stock back in October 2018, which raised $345.2 million in gross proceeds. Immediately following the sale, GW Pharmaceuticals unveiled Epidiolex, the first cannabis-derived drug approved by the Food and Drug Administration (FDA). Epidiolex data showed a statistically significant decline in seizure frequency for patients with two types of childhood-onset epilepsy. The next step is marketing and anticipated expansion of its label, in addition to additional cannabinoid-based compounds.
Like the others, GW Pharmaceuticals is losing money, but its robust cash balance will help to offset these losses while they push forward toward recurring profitability.
Aphria had close to C$550 million in cash on its balance sheet as of May 31, 2019, most of which was the result of a convertible note offering in April. The company sold $350 million in notes, which bear a 5.25% annual rate, which is due 2024. This move provided Aphria with enough capital to proceed with two business-savvy moves: make acquisitions and expand into overseas markets.
Aphria’s purchase of Nuuvera in March 2018 wasn’t received kindly by Wall Street, though. The acquisition drew criticism after it was revealed that some Aphria executives owned a stake in Nuuvera just a day before the deal closed. Following that, Aphria was accused of fraud by a critical short-seller report about their Latin American assets. While the allegations were proven false, an independent committee noted that a few Aphria executives had a conflict of interest in the deal, which means Aphria has a long road ahead of it to build trust with investors.