Appearances can be deceiving. That's especially true when it comes to looking at stock charts. Sometimes the stocks that have fallen quite a bit have more potential than their performances indicate.
This is especially true right now for several marijuana stocks. Here are three beaten-down marijuana stocks that are a lot stronger than they might look.
1. Canopy Growth
Shares of Canopy Growth (CGC -1.80%) are down 28% below their highs from earlier this year. While some of Canopy's decline is due to the overall stock market sell-off resulting from the COVID-19 pandemic, the Canadian cannabis producer's dismal fiscal 2020 Q4 results didn't help matters.
Canopy posted another massive net loss in Q4. Even worse, both the top and bottom lines trended in the wrong direction compared to the previous quarter. The company also withdrew its milestones for achieving positive adjusted EBITDA and net income.
But Canopy claims a bigger cash stockpile than any other Canadian cannabis company, so it has time to turn things around. New CEO David Klein appears to have the company moving in the right direction in terms of fiscal discipline.
Perhaps most importantly, Canopy's primary headwinds have been related to the COVID-19 outbreak and its associated retail challenges. The situation is improving now, though, which should boost Canopy's sales. If the company's cannabis-infused beverages become the game-changers that they could be, Canopy's future should be much brighter than its recent past.
2. Cresco Labs
Sure, Cresco Labs (CRLBF 5.45%) stock is still down 26% from its highs earlier this year. But it's important to note that Cresco's shares were down 70% at one point before a big rebound.
The dynamics for the U.S. cannabis industry and the overall economy are admittedly different due to the COVID-19 pandemic. In April, Cresco even scrapped its plans to acquire Tryke. However, there's no reason to think that Cresco's rebound will stall anytime soon.
Cresco posted 60% quarter-over-quarter revenue growth in Q1, with 26% organic growth and the rest stemming from its acquisition of Origin House. The company also generated its fourth consecutive quarter of positive adjusted EBITDA.
The cannabis markets in Cresco's home state of Illinois and in Pennsylvania remain very strong and were key factors behind the company's solid Q1 results. Cresco should see greater growth in the California market as it integrates the Origin House operations. The company also recently won a provisional processing license in Ohio, which allows Cresco to market its full suite of cannabis derivative products in the state.
Valens (VLNS -0.19%) stock remains 30% below its January high level. However, shares of the Canadian cannabis extraction services company have regained roughly half of the decline that reached bottom in mid-March.
The company's first-quarter results were solid, with Valens posting record-high revenue and a nice profit. But the quarter ended on Feb. 29, 2020, before the worst of the COVID-19 outbreak hit. Valens president Jeff Fallows warned that the company was seeing a reduction in demand for its extraction services as customers temporarily decreased their cultivation output.
Importantly, Valens anticipates a return to high demand for its extraction services in the second half of fiscal 2020. In particular, the company looks for strong white label sales in the back half of the year as the Canadian cannabis derivatives market picks up momentum.
Over the last month, Valens has secured key deals that strengthen its prospects even more. On May 14, the company entered the Australian cannabis market via a deal with the country's largest medical cannabis distributor. Last week, Valens announced a five-year agreement with Verse Cannabis to manufacture and distribute cannabinoid-based products including vapes, oils, and hydrocarbon-derived crumble.