The slew of weak quarterly earnings reports put an end to the speculation in cannabis stocks. Bearishness is so high that as we approach year-end tax-loss selling, new yearly lows are likely for these stocks.
Canopy Growth (NYSE:CGC) lost C$1.08 a share even after revenue more than doubled to C$76.6 million.
Aurora Cannabis (NYSE:ACB) fell in sympathy with the CGC stock drop.
Cronos (NASDAQ:CRON) reported revenue doubling, albeit to just C$12.7 million. Cannabis sales soared to 3,142 kg, up five-fold from last year. Astute investors will notice that Cronos included non-operating items to artificially boost net income.
The cannabis sector is in freefall for now. Until Canada accelerates store openings and more countries legalize the product, these big companies will continue to bleed money. More supply will come online, after investments in manufacturing over the last year.
Speculators need to watch one metric in the next year: cost of production and selling prices.
Cannabis firms need to lower production costs faster than the drop in selling prices. Until that happens, losses will keep growing as sales increase. That is not a sustainable investment thesis for those holding CGC, ACB, or CRON stock.
And of course, Tilray (NASDAQ:TLRY), whose ASP was the worst, is a stock investors should avoid.
