What happened
Marijuana stocks are having a moment in the sun today. As of 11:16 a.m. ET Tuesday morning, Aurora Cannabis' (ACB +1.39%) stock was up by 1%; Canopy Growth's (CGC 0.87%) shares were higher by 1%; and Green Thumb Industries' (GTBIF 0.29%) equity was up by 3%.
These beaten-down pot stocks appear to be melting up today in response to positive third-quarter earnings reports from industry giants like Goldman Sachs and Johnson & Johnson, as well as easing of the corporate bond situation in the U.K. Speaking to this point, all of the major U.S. stock indices are solidly in the green at the time of this writing.
Image source: Getty Images.
So what
Aurora, Canopy, and Green Thumb have had a dreadful year from a stock performance standpoint. Year to date, Aurora's shares are down by nearly 80%, Canopy's stock has plunged by an unsightly 71%, and Green Thumb's equity has fallen by 52.5%.
NASDAQ: ACB
Key Data Points
Cannabis stocks have cratered across this board this year thanks to the ongoing bear market, along with a less-than-stellar fundamental outlook for the industry as a whole. So, with these monstrous declines in mind, it's not all that surprising to see the struggling pot stocks getting a bit of relief in the wake of these favorable tailwinds today. Bargain hunters appear to be taking advantage of this prolonged weakness on the belief that better days ought to be ahead.
Now what
Are any of these cannabis stocks worth buying right now? Among the three, Green Thumb stands out as the best buy for a couple of reasons. Green Thumb is a multi-state operator (MSO) with a strong balance sheet, a rapidly rising top line, and a healthy commercial footprint that stretches across 15 U.S. markets. What's more, the cannabis company's shares are presently trading at well under two times forward-looking sales. That's a bargain for a high-growth, consumer-packaged goods company.
Aurora and Canopy Growth, on the other hand, are both struggling to find a path toward profitability. The core problem is that their shared domestic market of Canada is simply too small to support the thousands of licensed cannabis companies operating in the country right now. Moreover, the slow pace of legalization in larger international markets like the U.S. has put a damper on their all-important expansion plans.
The bottom line is that cannabis investors are probably better served by sticking to cash flow positive MSOs like Green Thumb, rather than Canadian pot giants such as Aurora or Canopy Growth. After all, the Canadian cannabis market has a long way to go to reach some kind of balance between supply and demand. And the international cannabis scene is likely to take a few more years to become a viable cash cow for these Canadian marijuana companies.
