Last week, cannabis stocks enjoyed a strong rally, due mostly to a rebound in the broader market. The rebound in the S&P 500 (SPY) and the Nasdaq (QQQ) lifted the cannabis stocks, too. This may prove short-lived.
Cronos (TSX:CRON) rose 8% last week on new fundamentally changing news. Canopy Growth (NYSE:CGC) enjoyed an even bigger rally, up 15% in the week. And although even Tilray (NASDAQ:TLRY) had the nicest bounce, up 19.9% last week, expect profit-taking in the days ahead.
CannTrust (NYSE:CTST) will likely unwind the business because of lawsuits and the government prohibiting it from resuming activities.
Should weed stocks fall again, investors should select the strongest companies. Aurora Cannabis (TSX:ACB) is fundamentally sound. The company has no major shareholder that will interfere with the business.
It completed its divestiture in its remaining stake of ~29M shares in The Green Organic Dutchman Holdings. The $86.5-million Canadian proceeds will help shore up Aurora’s balance sheet.
Aurora’s asset sale is a positive development. It does not need TGOD as it already has the highest production capacity in the industry. Earnings are around the corner and when that comes, the downtrend in the stock that began in March will end.
Tilray is still the stock investors should avoid. The company reported Q2 revenue growth of 371% but still lost $35.1M, or -$0.36 a share. The firm risks losing more money as production increases. Oversupply and falling prices, due to a lack of price stability, will hurt Tilray most.
Canopy and Cronos have outside investors that gave both firms lots of cash, so they may ride out the oversupplied markets.
