Over the long run, the marijuana industry is expected to show a lot of promise. Various Wall Street forecasts suggest that worldwide legal weed sales can grow from $10.9 billion in 2018 to anywhere between $50 billion and $200 billion in about a decade's time. That's growth that Wall Street and investors would be foolish (with a small "f") to overlook.
But the thing is, all next-big-thing investments need time to mature and find their footing. That's where the legal cannabis industry is right now. Despite a long runway to grow sales throughout North America, and eventually the world, supply issues in Canada, along with high tax rates and a persistent black market in the U.S., have stymied sales growth. In many instances, cannabis stocks are losing money, and that could continue throughout most of 2020.
In order for pot stocks to thrive over the long run, they're going to need a healthy cash pile in the interim to offset aggressive spending and losses. Based on their most recent quarterly reports, the following five marijuana stocks are among the most cash-rich in the industry.
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Canopy Growth: $3.14 billion Canadian ($2.36 billion)
It should come as no surprise that among pure-play pot stocks, Canopy Growth (CGC 1.77%) has more cash at its disposal than any other company. After all, part of the reason Canopy has been able to maintain its status as the largest cannabis stock is the fact that it has so much cash and short-term investments in its coffers.
Although Canopy did wind up selling CA$600 million worth of convertible notes in June 2018, the bulk of the company's cash came from Modelo and Corona beer maker Constellation Brands' $4 billion equity investment, which closed in November. This actually marked the third time that Constellation had directly or indirectly bought into Canopy Growth, and it lifted its equity stake in the largest marijuana stock in the world to 37%.
For its part, Canopy Growth has been a busy bee. It agreed to acquire Acreage Holdings on a contingent-rights basis in a cash-and-stock deal, acquired Colorado-based intellectual property company ebbu, and is spending $150 million (that's U.S. dollars) on a hemp-processing facility in New York State. Between its ongoing operating losses and aggressive expansion, Canopy Growth's cash pile is expected to continue shrinking.
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Cronos Group: CA$2.32 billion ($1.74 billion)
Once miles away in terms of cash on hand, Cronos Group (CRON 1.17%) is suddenly within striking distance of dethroning Canopy as the most cash-rich cannabis stock. Inclusive of short-term investments, Cronos had about $1.74 billion available as of the end of June. It should be noted, though, that its recently announced $300 million acquisition of Redwood Holdings is being paid for with $225 million in cash.
Like Canopy Growth, Cronos Group's monstrous cash pile is the result of an equity investment – in this case from tobacco giant Altria. The deal, which closed in March, saw Altria take a 45% non-diluted equity stake in Cronos in exchange for $1.8 billion. Given the cash figure noted above, Cronos has had far less cash burn than Canopy, although it will be parting with a notable chunk of cash tied to its Redwood deal to gain hold of the Lord Jones topical brands.
Cronos Group's cash is a big reason the company's market cap has held up as well as it has (it's still around $4 billion). From an operating perspective, Cronos Group's results haven't been impressive. Sure, it's reported huge profits on the back of derivative liability revaluations, but these are one-time benefits. Speaking purely of the company's operating results, Cronos is still losing money, and that's not expected to change anytime soon.
Image source: GW Pharmaceuticals.
GW Pharmaceuticals: $583.7 million
The largest cannabinoid-based drug developer in the world by market cap, GW Pharmaceuticals (GWPH +0.00%), also has an impressive war chest of capital at its disposal, which should be expected given the need to research and develop new therapies.
The majority of GW Pharmaceuticals' cash was generated in early Oct. 2018, when the company sold 1.9 million shares of stock and had the underwriters of the offering fully exercise their option to purchase 285,000 additional shares. The offering wound up raising $345.2 million in gross proceeds before underwriting discounts, commissions, and offering expenses.
Why raise so much capital, you ask? In November, GW Pharmaceuticals launched Epidiolex, which is the very first cannabis-derived drug approved by the Food and Drug Administration (FDA). After leading to a statistically significant decline in seizure frequency for patients with two types of childhood-onset epilepsy – one of which had no FDA-approved treatment – Epidiolex was easily approved by the FDA. GW Pharmaceuticals needed a healthy amount of cash to market its new drug, as well as bolster its clinical pipeline to hopefully expand its label, as well as complement it with other cannabinoid-based compounds.
GW Pharmaceuticals is also losing quite a bit of money as it ramps up sales of Epidiolex, which more than doubled in the second quarter from the sequential first quarter. The company's cash balance will help offset these near-term losses as Epidiolex helps GW push toward recurring profitability.
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Aphria: CA$571 million ($428.3 million)
Another well-known pot stock with plenty of capital on its balance sheet is Aphria (APHA +0.00%). At the end of Aphria's fiscal 2020 (May 31, 2019), the company had close to CA$550 million in cash, with the remainder in short-term investments.
Unlike cultivation peers Canopy and Cronos, Aphria's cash was mostly derived from a convertible note offering in April. The company sold $350 million (U.S.) in convertible notes, with the underwriters of the deal exercising their full allotment. These notes, which come due in 2024, bear a 5.25% annual rate, but supplied Aphria with abundant capital to expand into overseas markets, as well as make acquisitions.
Like its peers, Aphria has been active on the acquisition front. Unfortunately, the company's acquisitions haven't been well-received by Wall Street. Its purchase of Nuuvera in March 2018 wound up drawing the ire of investors after it was disclosed that some Aphria execs owned a stake in Nuuvera. While it's not unheard of for execs of an acquiring company to own a stake in the company being acquired, it's odd to find out about it just a day prior to the closing of the deal. Then, in December, Aphria was hit with allegations of fraud from a scathing short-seller report regarding its Latin American assets. Although these allegations were proved false, an independent committee found that a few executives had conflicts of interest in the deal.
Long story short, Aphria has a long way to go to rebuild trust with investors, and it's unclear how it'll use its cash to make that happen.
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Aurora Cannabis: CA$391.5 million ($293.6 million)
Last, but not least, the largest Canadian producer, Aurora Cannabis (ACB 0.58%), has a healthy sum of capital at its disposal. It should be noted that the CA$391.5 million figure above includes about CA$43.6 million in restricted cash, and that this cash total represents what Aurora had on its balance sheet through March 31, 2019. It's likely changed substantially since then.
Although CA$391.5 million might not seem like a lot of cash for a company that's made more than a dozen acquisitions over the past three years, Aurora isn't known for using its cash on hand to fund acquisitions. With the exception of the CanniMed deal in early 2018, Aurora has funded practically every deal solely by issuing shares of its stock. This is a big reason why the company's outstanding share count has risen from 16 million shares to north of 1 billion in less than five years. While cash is important to all pot stocks, a huge cash pile would be unnecessary for Aurora Cannabis.
Furthermore, keep in mind that Aurora filed a shelf prospectus in early April that could allow it to raise up to $750 million (U.S.) in the 25-month period following the effective date of the shelf offering. This money can be raised by selling stock, offering convertible notes, and a number of other methods. So, even though Aurora has far less cash on hand than Canopy, Cronos, and Aphria, it has ample access to cash, should the company need it.
