While the Canadian cannabis market suffered a huge blow in 2019 as losses mounted amid a glut in supply, 2020 is proving to be a surprising year for the nascent industry.
The COVID-19 pandemic was a boon to the industry as Canada and the United States classified pot shops as essential business. Marijuana stocks, which were previously rated with “sell on strength” by many analysts, have emerged as defensive plays. That’s because demand for cannabis and its derivatives soared in a coronavirus world.
Here are the three best Candian cannabis plays in 2020.
Cronos Group (TSX:CRON)
The Toronto-based medical cannabis producer and distributor offers the rare opportunity to buy what could possibly be its bear market bottom. While the company is still facing some headwinds, it is in a rock-solid financial position.
As mentioned, the Canadian market is still facing a cannabis oversupply which the company dealt with by facing an $8 million USD inventory write-down. But even after that, Cronos Group touts an immaculate balance sheet.
Between 2018 – 2019, the firm’s cash and short-term investments rose from $33 million CAD to $1.95 billion CAD, representing growth of 5,876.09% in 12 months. That number decreased slightly to $1.9 billion CAD by March 31, 2020. Cronos Group’s short and long-term debts amount to a negligible $15 million CAD as of the end of March.
It appears the company’s trend of profitability will continue as Cronos crushed first-quarter expectations after reporting earnings of $0.20 USD per share versus analyst estimates of a loss of $0.07 USD per share. With the recent earnings beat, the company has exceeded consensus estimates in three of the last four quarters.
Smart money investors seem to be noticing that Cronos has turned a corner.
From a technical standpoint, it is very likely that the stock is carving a bottom at $8 CAD. The volume spiked on June 19th while the price held firm suggests that a big player is accumulating and is determined to stop the bleeding. The bullish accumulation bias remains valid as long as CRON trades above $8 CAD.
Trulieve Cannabis (CSE:TRUL)
Trulieve Cannabis is poised to replicate its impressive results in the Sunshine State.
Unlike other marijuana companies that are quickly expanding into other territories, the seed-to-sale Quincy-based firm made it a point to have a singular focus on Florida. The strategy is paying off big time.
Between 2016 to 2019, Trulieve’s revenue surged from $213,500 CAD to $335.5 million CAD, a massive increase of over 157,000% in four years. Its earnings per share also took a huge leap from a loss of $ 0.04 per share in 2016 to an earnings of $2.14 per share in 2019.
The secret in Trulieve’s success is in the company’s ability to minimize expenses. In 2019, the company’s operating expense of $92.84 million CAD accounted for 27% of the year’s revenue. These figures indicate that the company has created a sought-after brand without spending a fortune on marketing.
With a solid foothold in Florida and an effective growth strategy, Trulieve is now eyeing to expand into other territories. California, Massachusetts, and Connecticut, and Canada are in the company’s sights in the years ahead.
From a technical perspective, TRUL is ready to erupt. Once it takes out long-term resistance of $18 CAD, it’s very likely that it will climb all the way up to its all-time high of $23.85 CAD.
Green Thumb Industries (CSE:GTII)
An investment in Green Thumb is a bet that the cannabis market will turn the corner very soon.
The Chicago-based cannabis consumer packaged goods firm made its debut on the Canadian Securities Exchange in 2018 to hop on the booming marijuana market in the country back then. While GTII has been in a bear market since the fourth-quarter of 2018, fundamental and technical signals indicate that the company will likely reverse its fortune soon.
From 2017 – 2019, Green Thumb’s revenue went from $21.4 million CAD to $287.2 million CAD, representing growth of over 1,200% in two years. Over the same stretch, the company saw its cash position grow from $37 million to $61 million CAD.
But the company has yet to break into profitability as it continues to invest in its expansion efforts both in terms of locations and products.
Green Thumb has 45 operational dispensaries south of the border with licenses to open nearly 100 stores in 12 states. The company is also diving head first into the cannabis derivatives market by offering alternative products such as edibles, beverages, and vapes.
From the technical view point, GTII is an explosion waiting to happen.
GTII has been knocking on psychological resistance of $14 CAD since September 2019. The stock has tapped the resistance multiple times suggesting that it’s only a matter of time before the resistance succumbs to the bulls.
GTII is a buy on breakout play. A convincing break above $14 CAD would likely signal a new bull market as investors bet that Green Thumb’s expansion efforts would pay dividends soon.
Disclaimer: The above should not be considered investment or trading advice. The author does not own shares of the companies mentioned.
Kiril is a CFA Charterholder who is passionate about the financial markets and analyzing different opportunities for investors. He specializes in researching and reporting on equities, ETFs, mutual funds as well as commentary on different market trends.