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Why Aphria, Aurora Cannabis, and Cronos Group Sank in February

By George Budwell - Updated Mar 4, 2020 at 10:33AM

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Concerns over the global supply chain weighed on these top pot stocks last month.

What happened

Canadian marijuana stocks had a terrible February. High-profile names like Aphria (APHA), Aurora Cannabis (ACB 7.75%), and Cronos Group (CRON 5.42%) each lost a staggering amount of value last month. Aphria's shares dropped by 21.5%, Aurora's stock dipped by 29.1%, and Cronos' equity slipped by 18.5%, according to data from S&P Global Market Intelligence.

While the broader markets also performed rather poorly in February, Aphria, Aurora, and Cronos all posted losses that were far larger than the major indexes last month. In fact, these three pot stocks were some of the worst performers in the entire healthcare sector in February.  

A vape pen next to two lids of marijuana buds.

Image source: Getty Images.

So what

What sent investors running for the exits? The big concern is that the COVID-19 illness will disrupt global supply chains for a long time. China, after all, makes a disproportionate amount of the world's consumer packaged goods these days. So a lengthy pause in China's manufacturing output could have a profound impact on the legal marijuana industry.

Turning to the specifics, most of these legal marijuana companies depend on Chinese manufacturers for key components for their vape pens. That's potentially bad news for companies like Aphria, Aurora, and Cronos. All of these names are counting on high-margin products like vapes to boost sales in the latter half of the year. To be fair, none of these companies have announced a delay in Cannabis 2.0 product launches dues to kinks in the global supply chain. But the market is clearly worried about this issue. 

Now what

Is Aphria, Aurora, or Cronos worth buying after last month's hair-raising dip? Aphria might be a decent pickup at these levels. The company has consistently been one of the cheapest names in the space, and it is among the few that have been repeatedly profitable within the past year. Aurora, on the other hand, is facing a long list of problems right now. Thus Aurora is probably best viewed as nothing more than a watch list candidate at the moment.

Finally, Cronos' stock is definitely a tough call. The company has the backing of a major Fortune 500 partner in Altria, but it's also having problems getting its financial statements filed on time. That's a worrying sign, and investors might want to sidestep this Canadian pot stock for the time being as well. There are far more compelling growth plays to buy right now.  

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Stocks Mentioned

Aurora Cannabis Stock Quote
Aurora Cannabis
ACB
$1.53 (7.75%) $0.11
Cronos Group Stock Quote
Cronos Group
CRON
$3.11 (5.42%) $0.16
Aphria Stock Quote
Aphria
APHA
Altria Group, Inc. Stock Quote
Altria Group, Inc.
MO
$43.40 (2.09%) $0.89

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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