It's pretty safe to say that last year did not go as planned for a majority of marijuana stock investors.
The belief had been that cannabis stocks would push decisively into the green, led by skyrocketing dried cannabis sales in Canada, the subsequent launch of derivatives, and more legalizations in select U.S. states. But supply issues constrained legal product in Canada, derivatives launched two months later than expected (in mid-December), and high tax rates have stymied adult-use sales in a number of U.S. states. Ultimately, most pot stocks lost money in 2019, and may continue to do so in 2020.
While the cannabis industry should make strides in 2020, it's pretty clear how important having adequate cash on hand has become. As we push headlong into the new year, the following five marijuana stocks currently boast the most cash on their balance sheets (as of the end of their most recent quarter). Note that "cash" includes cash, cash equivalents, and marketable securities, but not restricted cash.
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1. Canopy Growth: $2.11 billion
As has been the case for some time now, Canopy Growth (CGC -0.66%) leads all pot stocks in the cash department with a little over $2.1 billion. Subtracting Canopy's debt would mean that approximately 18% of the company's current market cap is entirely covered by its cash.
Most of Canopy Growth's cash derives from its November 2018-completed equity investment from Constellation Brands, the maker of Modelo and Corona beer. Constellation's $4 billion investment netted the company a 37% stake in Canopy (this actually marked its third such investment), all while giving Canopy the capital needed to make acquisitions and expand into new markets. For instance, Canopy is using its cash hoard to build a hemp processing facility in New York State.
But the company has also been burning through its cash at an incredible pace. Over the past three quarters, Canopy's cash, cash equivalents, and marketable securities have declined by about $1.7 billion. Yes, acquisitions are part of the reason for this decline. But another notable culprit is the company's massive operating losses. A big jump in hiring and marketing costs has whittled away at Canopy's enviable cash position and will likely do so again in 2020, even with a cost-conscious David Klein set to take over as CEO.
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2. Cronos Group: $1.53 billion
The only other cannabis stock that's carrying around more than $1 billion in cash is Cronos Group (CRON 0.41%). Like Canopy Growth, it was also lucky enough to attract an equity investor, which is why it has $1.53 billion in cash at its disposal.
In mid-March 2019, Cronos closed an equity investment from tobacco giant Altria Group for $1.8 billion. The deal gave Altria a 45% stake in Cronos, as well as a means to expand its sales channels beyond just U.S. tobacco. As a reminder, adult cigarette smoking rates have declined to an all-time low in the United States, which certainly encouraged Altria to seek out the lucrative long-term growth opportunity that cannabis offers.
To date, Cronos Group has only made one major acquisition, the $300 million deal to buy Redwood Holdings, the owner of the Lord Jones brand of beauty products infused with cannabidiol (CBD). Three-quarters of the purchase price of this deal was cash. Although Cronos Group continues to lose money on an operating basis, its losses are nowhere near the level of Canopy Growth. That gives it an outside chance of becoming the cash leader in the marijuana space by the end of 2020.
Image source: GW Pharmaceuticals.
3. GW Pharmaceuticals: $554.7 million
Even though management doesn't enjoy its company being lumped in with marijuana stocks, cannabinoid-focused drug developer GW Pharmaceuticals (GWPH) is rolling in the green. It ended its most recent quarter with nearly $555 million in cash at its disposal.
As the only non-grower on this list, it's not really a big surprise that GW has this much cash at the ready. Drug developers need a lot of capital to research new therapies, run clinical studies, launch new drugs, and properly market them if approved. Don't forget that Epidiolex, the company's leading oral treatment for two rare types of childhood-onset epilepsy, launched in November 2018. This means the company is still working hard to ensure proper insurance coverage and physician awareness of this top-selling drug.
GW Pharmaceuticals will be looking to expand Epidiolex's label, as well as garner success beyond its potential long-term blockbuster. This year might also be when the company makes its first push into profitability, but only time (and Epidiolex's ongoing ramp-up) will tell.
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4. Aphria: $357.5 million
Ontario-based Aphria (APHA) is also sitting on a seemingly hearty pile of cash, with a little over $357 million in its coffers. As a potential top-three producer when fully operational, this cash would seemingly come in handy.
But Aphria has contended with a number of challenges. The company's flagship joint venture that's capable of 140,000 kilos in peak output per year, the Aphria Diamond campus, only recently received the nod to begin planting. It took north of 18 months for Health Canada to give Aphria the OK to grow cannabis. Likewise, its home province of Ontario only had 24 open dispensaries as of Oct. 17, 2019, the one-year anniversary of adult-use sales commencing in Canada. Aphria has very much needed this cash to balance out some of the uncertainty the industry has dealt with.
Furthermore, the company generated the bulk of this cash by pricing a $350 million convertible debt offering in April 2019. This means that while Aphria is cash-rich, it's also lugging around nearly the same amount of debt on its balance sheet. This is something prospective investors will want to keep in mind.
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5. Aurora Cannabis: $147.8 million
The most popular marijuana stock on the planet, Aurora Cannabis (ACB -2.96%), ended its fiscal first quarter with almost $148 million in cash, not counting restricted cash.
Aurora isn't a surprising name to find on this list given just how many projects it has ongoing. The company has 15 production facilities; has made more than a dozen acquisitions since August 2016; and boasts a production, export, research, or partnership presence in 24 countries outside of Canada. Aurora has been, arguably, more aggressive than any other pot stock in terms of expansion, and having an ample amount of capital on hand has been imperative in making this happen.
But similar to Aphria, it's important to note that Aurora Cannabis is also carrying a lot of debt on its balance sheet. At the end of the previous quarter, the company had roughly $465 million in net debt. On the plus side, subsequent to the end of its fiscal Q1 2020, Aurora took care of its $177 million convertible note coming due in March 2020. Nevertheless, issuing common stock appears to be the only way that Aurora has of raising substantive amounts of cash. In doing so, the company continues to dilute its shareholders. I don't expect this to change much in 2020.
