Nov 26, 2019 (Baystreet.ca via COMTEX) -- The v-shaped rebound in cannabis stocks renewed hopes for investors that the downturn is over. Year-to-date, the sector is still a big loss. How should investors trade cannabis stocks in light of the volatility?
Stocks like Cronos /zigman2/quotes/206842762/composite CRON +0.26% , Canopy /zigman2/quotes/200603886/composite CGC -0.04% , Tilray /zigman2/quotes/209129655/composite TLRY +3.48% , Aphria /zigman2/quotes/207425803/composite APHA +2.44% , and Aurora Cannabis /zigman2/quotes/210559470/composite ACB +4.39% offer the best trades in the weeks ahead. Bulls will argue that v. 2.0 (edibles, softgels) will lead to stronger demand. Bears will point to the over-supply and cash crunch ahead. What is the right play?
Traders need not care about the fundamentals, so long as the trade is unemotional and is riding on volatility. But fundamental investors who buy and hold those stocks need to exercise caution.
Avoiding the companies that are running out of money will minimize trading losses. Aurora's ~94% holders of its 5% unsecured convertible debentures converted to stock. Aurora also stopped further spending on various projects to conserve cash.
ACB stock is risky at this time.
Tilray has a fundamental problem, too. The price of the product fell again last quarter while costs are still too high. The company is unlikely to reach profitability.
Aphria has a modest market cap of around $1.3 billion. It doubled its production capacity and may produce another 140,000 kg a year (255kg/yr annually). The company is also profitable, reporting C$0.07 in EPS in its Q1. Out of all the cannabis stocks to choose from, investors should consider Aphria.