Buying on the dip is one thing, but buying on an all-out collapse is quite another. Still, that's a prospect that cannabis investors face today. Many pot stocks are struggling this year after an already tough 2019, and the coronavirus pandemic is making growth an afterthought for some companies who are just trying to survive the crisis.
These three pot stocks -- Harvest Health (HRVSF), Aurora Cannabis (ACB 3.94%), and HEXO (HEXO 3.30%) -- have all lost more than half of their value already this year. Let's take a look to see whether all hope is lost or if any of these companies can turn things around anytime soon.
1. Harvest Health
It's a bit surprising that Harvest Health is on this list, because the company isn't really doing all that badly. In its most recent quarterly results, released on Aug. 11 for the period ending June 30, the company's sales of $55.7 million were more than double its prior-year tally. In addition to that, the multistate operator raised its guidance. Previously, it was forecasting $200 million in sales for 2020, but now it's expecting its top line to come in between $215 million and $220 million.
The company even showed improvements on its bottom line, with a net loss of $18.3 million in the second quarter that was 28% smaller than last year's $25.5 million loss. And for cannabis investors worried about cash, Harvest Health is in a good position there, too. For the six months ending June 30, it burned through $18.2 million, compared with $46.4 million during the same period a year ago. With cash and cash equivalents of $61.7 million as of the end of June, the company looks to be in good shape right now.
Overall, there aren't any glaring reasons that Harvest Health should be doing this badly -- it's down 67% year to date. What might get this stock moving is some positive news in November if its home state of Arizona votes to legalize recreational pot. South Dakota, Montana, and New Jersey will also decide on whether to legalize adult-use marijuana this year.
2. Aurora Cannabis
Unlike with Harvest Health, the reasons behind Aurora Cannabis's current struggles are anything but a mystery. That the stock has declined this year is no surprise; the only eyebrow-raiser might be just how badly it's done, losing 82%. And the Alberta, Canada-based pot producer is already coming off a tough 2019 during which its share price fell 56%.
The latest reason investors are bearish on the stock is yet another disappointing quarterly report. Aurora released its fourth-quarter earnings on Sept. 22, for the period ending June 30. Its revenue of 72.1 million Canadian dollars was down 27% from the previous year, when it reported sales of CA$98.9 million -- and that was already a disappointment, given that the company had missed the guidance it issued just a month earlier. The drop in sales wasn't even that bad when you consider that Aurora reported a net loss of CA$1.9 billion, although to be fair, this was largely due to impairment charges of CA$1.8 billion.
Aurora investors are likely wondering when the stock will hit the bottom. The company already did a 12:1 reverse split earlier this year to help keep its price up so that it can stay on the NYSE. If Aurora keeps falling, it may only be a matter of time before it needs to do another reverse split. Today, its shares are trading for less than $5 after nearing $10 as recently as the end of August.
For Aurora's stock to turn things around, there needs to be some earth-shattering news -- say, that it's signed on a big investor, or it has some exclusive deal that will generate tens of millions of dollars for the company.
While it's performing the best of the three stocks listed here, HEXO is still down 59% this year. Trading below the $1 mark on the NYSE, it's where Aurora found itself earlier this year, potentially needing to do a reverse split to stay on the exchange.
The Canadian company last released its quarterly results on June 11 for the period ending April 30. In that third-quarter earnings report, HEXO's net sales of CA$22.1 million were up 70% year over year. But the company credited the increase primarily to its value brand, Original Stash, which meant that the significant jump in sales resulted in only a CA$2.4 million increase in gross margin -- still nowhere near enough to help get its financials to breakeven. Its CA$21.1 million operating loss was nearly 10 times the CA$2.2 million loss it reported in the same period last year.
One way HEXO can get investors excited about its stock is if the company reports some strong sales from its new cannabis beverages. The company has a joint venture, Truss Beverage, with Molson Coors Canada. The companies announced in August that they will be rolling out five brands over the coming months. If those new products can help deliver some strong results, that could get investors optimistic about the company's future.
Which stock is the best contrarian buy today?
Before deciding on which stock is in the best shape moving forward, let's take a quick recap of their performances thus far in 2020:
The biggest long shot today is definitely Aurora. The stock's so beaten up that a lot needs to go right for it to be a buy, as it's routinely let investors down. And between HEXO and Harvest, the edge has to go to the latter; as a U.S. pot stock, Harvest may be some exciting new markets to expand into very soon that could make it a hot buy.