By: Philip MacKellar
Published: March 13, 2025
How are pot stocks looking these days? Way back before the pandemic, as the industry was getting off the ground, cannabis companies were all the rage. IPOs were common, momentum was strong and no valuation seemed too high. It turned out to be a classic bubble – and it popped.
Back in late 2022, I wrote a bearish article about the prospects for the sector – and for Canopy Growth Corp. WEED-T in particular. The article argued that while many pot stocks were down more than 90 per cent from their record highs, the negative revenue trends, massive profit losses, weak balance sheets, widespread dilution and persistent insider selling were negative. The article concluded that “pot stocks – like Canopy – [were] far from making it onto our watchlist here at Contra the Heard Investment Newsletter.” Since then, Canopy Growth’s ticker has imploded 95.7 per cent, and the share prices of many industry peers have contracted in a similar manner.
The market now seems to be diverging. Corporations such as Canopy, Tilray Brands Inc. and OrganiGram Holdings Inc. are still stuck in a deep funk. The shares of these companies continue to decline, and more importantly, their underlying businesses are in bad shape. All three of them have posted large and consistent net losses, diluting owners and – except for Tilray – are seeing insider selling. In other words, little has changed since 2022.
The silver lining? These stocks are no longer expensive. Could they be value traps? Absolutely. Canopy, for example, exhibits many value trap characteristics. In the latest quarter, its top line decreased from $78.5-million to $74.8-million, and the firm lost a staggering $121.9-million. If you think that’s bad, the loss was $216.8-million a year ago. Talk about financial bleeding.
By contrast, Aurora Cannabis Inc. and Cronos Group Inc. are starting to look interesting, and both have been added to our watch list.
Aurora’s stock is up approximately 80 per cent in the prior year, though it is still miles off its five- and 10-year highs. The turnaround appears to be going well, and the financials are decent. The top line is expanding, money is being made and it is starting to meet or exceed analysts’ estimates. As for the balance sheet, it is healthy, with a current ratio of 3.3, minimal debt and a liability-to-equity ratio of 0.42.
In its latest earnings report, the chief executive officer noted record medical cannabis revenue, net income and free cash flow. The outlook was positive on continued revenue growth and expanding margins. That said, insiders are still selling, dilution remains a problem and competition is fierce.
The good news story is similar at Cronos Group. The business is moving ahead, and the shares are up marginally over the past year. Sales are up, it, too, has started making money and the balance sheet is strong. The rate of dilution has slowed, and the share count is basically flat since 2022.
Cronos’s most recent quarterly results missed analyst consensus estimates on the top line but exceeded them by a wide margin on the bottom line. The turnaround is going well, and the business is continuing to expand its markets and facility footprint while cutting costs.
It is encouraging to see signs of progress in this beleaguered industry. Its boom-to-bust history offers several lessons for investors. First, bubbles can be incredibly overvalued. All of the companies mentioned in this article have seen their share prices tumble at least 90 per cent from their all-time highs; in the case of Canopy Growth and Aurora, the fall has been more than 99 per cent. Second, once the bubble bursts, corporate turnarounds can take years. Finally, the situations at Canopy Growth, Tilray Brands and OrganiGram Holdings illustrate that not all turnarounds work. Though the organizations may eventually succeed, the economics of these businesses are severely challenged.
It is still too early for me to invest in any of the names mentioned in this article. But the market seems to be diverging, and there are some areas of interest. Companies such as Aurora Cannabis and Cronos Group are starting to grow and turn a profit – and have earned a spot on our watchlist.