Zootly’s Hoot on investing in the cannabis industry
If you’re looking to add Cannabis to your investment portfolio, it can be hard to hash out the good stocks from the bad. Enter The Zootly Portfolio. Giving you the lowdown on the Cannabis stocks we think you should buy and sell.
Aurora Cannabis (ACB)
Zootly says: Sell
Aurora is one of the largest licensed medical cannabis producers and distributors in Canada. Goliath cannabis companies like Aurora are buying out the smaller ones wherever possible. In as recent as January 2019, Aurora acquired Whistler for a smoking $CA175 million! However, due to its deteriorating net income, disappointing return on equity and weak operating cash flow, Aurora is recommended as a sell. Auroras return on equity trails that of both the industry and the S&P.
Cronos Group Inc. (CRON)
Zootly says: Sell
Formerly known as PharmaCan Capital Corp, Cronos Group Inc. is a top Cannabis operator in Canada. Cronos recently sealed a $1.8 billion equity deal with Altria, but it’s not a Wall Street favourite – neither one of ours here at Zootly.
Much like ACB, Cronos has suffered from a significant decrease in net income and net operating cash flow, low return on equity and a low growth rate.
Cronos Group Inc has experienced a steep decline in earnings per share in the most recent quarter. This is in comparison to its performance from the same quarter a year ago.
Constellation Brands (STZ)
Zootly says: Buy
In 2018, Constellation Brands, the maker of Corona beer, upped its stake in the Cannabis industry by investing a smoking hot $4 billion in Canopy Growth.
It’s really a match made in investor heaven. Canopy has a kushy industry position, with a third of Canada’s cannabis market. They look on track to produce more than 500 000 kilograms of cannabis. Its new partner, Constellation, is the producer of Corona and Modelo beer. They are the third-largest producer of beer in the US, and one of the world’s leading producers of premium wine.
According to the Julius Baer Group, their strengths include;
“high-margin growth drivers in place, given volume growth, supply chain efficiencies, a favourable product mix [and] continued focus on premiumisation through its strong portfolio of premium brands”.
And as if that wasn’t enough, the latest drop in share price presents an attractive entry point for investors. Constellation Brands lowered its earnings outlook in the most recent quarter. This was done and/as the company’s acquisition of the beer business in 2013 sparked a five-year-period of expanding sales and profit margins.