After years of blistering gains, pot stocks have fallen out of grace on Wall Street in 2019, and the big names in the sector have all traded down into oversold territory.
The U.S. has a huge market for both medicinal and recreational marijuana, and as more states pass legislation to allow for marijuana use the market could explode. The big problem now for the sector is that marijuana remains illegal on a federal level which has kept the big Canadian companies from entering the market.
The District of Columbia and 11 states have passed recreational marijuana laws, and 33 states have passed legislation making medical marijuana legal. The federal government has yet to change its stance on marijuana, but as more and more states pass legislation on medical and recreational marijuana the government will be forced to adapt, and when it does, marijuana stocks will once again post huge gains like the ones we witnessed in recent years.
Here are a few pot stocks that have been beaten up in 2019 and offer good entry points at the current time.
Canadian manufacturer Canopy Growth (CGC) has been in a strong downward trend since the middle of summer and the stock is currently trading just pennies above its 52-week low. The major players in Canada are still lacking an entry into the U.S. market while marijuana remains illegal on a federal level. CGC stock soared between 2016 and 2018, but the stock has trended lower over the last six months.
The company has yet to turn a profit, but its size puts it in a great position to grow its distribution levels to keep pace with demand in Canada, and its market size gives it a good upper hand once Canadian companies start to move into the U.S. market. Constellation Brands (STZ) has invested $4.8 billion in the company which should allow Canopy a good avenue into the U.S. edible market once the federal government changes its stance on the sector. Analysts remain very bullish on the stock with a $39.94 price target, versus its current price of $22.78.
Tilray (TLRY) went public in mid-2018 and the stock initially soared. After hitting a high of $178.85 last summer, the stock has traded sharply lower and is currently trading at $24.51, just above its 52-week low. The company has yet to turn a profit, but Tilray has grown revenues by over 200% the last 12 years. The market is weary of pot stocks at this time until companies are able to show a profit, but Tilray’s revenue growth is impressive and the recent selloff appears to have driven shares into oversold territory.
Investor sentiment is bearish on the sector as a whole after such a strong run in recent years but as investors come back into the sector companies like Tilray with such strong revenue growth should regain their footing and start to recover recent losses.
Cronos Group (CRON) stock enjoyed strong gains between mid 2016 and late 2018 before starting to sell off in 2019. The stock has trended steadily lower since hitting a high in early 2019 and his currently down 65% from its all-time high in March. Cronos attracted a huge investment from tobacco giant Altria (MO), which has invested $1.8 billion in the company for a 45% stake. The partnership puts Cronos in a great position to expand into the U.S. market as legislation allows. Altria needs a new revenue stream to combat declining smoking rates, and Cronos will need Altria’s infrastructure and political connections if and when the U.S. market opens.
Analysts remain upbeat on the stock and see a lot of upside potential. CRON trades at $8.67 with an average price target of $14.82.
Aurora (ACB) is another marijuana stock that is currently trading just above its 52-week low. The stock has traded steadily lower since early March as Wall Street turned cold on the overall sector. After years of euphoria in the sector, traders have turned away from pot stocks due to companies not being able to keep pace with demand and the barriers of entry that still exist in the U.S. market.
Like most pot stocks, Aurora has yet to turn a profit, but analysts at Cowen have forecast it will be the first major marijuana company to turn profitable. The company controls a huge portion of the Canadian market, and its size puts it in a good position to ramp up production in order to keep pace with rabid demand in Canada and to expand into the U.S. as future legislation eases entry. ACB trades at $4.20 with an average price target of $8.13.
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