Although the U.S. cannabis industry has been gaining steam due to the legalization of recreational marijuana in several states, there continue to be major obstacles including legalization at the federal level. Further, cannabis has proven itself quite easy to grow with few barriers to entry which means that marijuana producers are unlikely to deliver great returns for investors.
Furthermore, with the laws around cannabis becoming gradually favorable, more players are entering the cannabis space, making the industry highly competitive. This could negatively impact the market share of existing players and place more downward pressure on prices.
Given this backdrop, it could be wise to steer clear of cannabis stocks Harvest Health & Recreation Inc. (HRVSF), TerrAscend Corp. (TRSSF), and OrganiGram Holdings Inc. (OGI), which possess weak fundamentals.
Harvest Health & Recreation Inc. (HRVSF)
HRVSF is a cultivator, distributor, and marketer of cannabis products. The company provides quality classics, cannabis oil products, including flower, vaporizer pens, cartridges, cannabis product edibles, chocolates, mints, and dissolvable mouth strips. Avenue, CBX SCIENCES, EVOLAB, GOODSUN, MODERN FLOWER, and ROLL ONE are some of the brands under the company.
HRVSF’s revenue increased 84.1% year-over-year to $102.46 million in the second quarter ended June 30, 2021. However, the company’s total expenses grew 26.4% from the year-ago value to $40.93 million. Its loss per share came in at $0.04. Also, the company’s cash and cash equivalents decreased 9% from $78.06 million as of December 31, 2020, to $71.06 million as of June 30, 2021.
HRVSF’s EPS is expected to remain negative in the current year. The company has failed to beat the consensus EPS estimates in three of the trailing four quarters. Also, the stock has lost 25.7% over the past three months.
HRVSF’s POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, which equates to a Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its weighting.
Also, the stock has a D grade for Value, Sentiment, and Quality. We’ve also graded HRVSF for Growth, Momentum, and Stability. Click here to access all of HRVSF’s ratings. HRVSF is ranked #187 of the 215 stocks in the F-rated Medical – Pharmaceuticals industry.
TerrAscend Corp. (TRSSF)
Headquartered in Mississauga, Canada, TRSSF are a cannabis cultivator, manufacturer, and operator. It also has vertically integrated operations in Pennsylvania, New Jersey, and California. The company owns several synergistic businesses and brands, including The Apothecarium, Ilera Healthcare, Kind Tree, Prism, State Flower, Valhalla Confections, and Arise Bioscience Inc.
This month, TRSSF received pre-qualification approval from the state of Michigan's Marijuana Regulatory Agency to acquire Gage Growth Corp. Though the company can strengthen its cultivation and processing capabilities through this acquisition, it could weigh heavily on its expenses in the coming months.
During the second quarter ended June 30, 2021, TRSSF’s total operating expenses increased 44.2% year-over-year to $23.43 million. The company’s net loss grew 135.4% from the year-ago value to $23.13 million. Its comprehensive loss rose 101.4% from the prior year's quarter to $20.11 million. Also, the company’s loss per share increased 133.3% year-over-year to $0.14.
TRSSF’s EPS is expected to remain negative in the current year. Moreover, its stock declined 27.1% over the past three months and 28.8% over the past six months.
TRSSF’s poor prospects are also apparent in its POWR Ratings. The stock has an overall D rating, which equates to Sell in our proprietary rating system. Also, the stock has a D grade for Value, Momentum, and Quality.
In addition to the POWR Rating grades I’ve just highlighted, one can see TRSSF’s ratings for Growth, Stability, and Sentiment here. TRSSF is ranked #176 in the same industry.
OrganiGram Holdings Inc. (OGI)
Incorporated in 2013, OGI is a Moncton, Canada-based medical cannabis provider. It offers cannabis-derived products, a cannabis-infused soft chew, and confectionery. The company also produces indoor-grown cannabis for patients and adult recreational consumers under the Edison Cannabis Company, Indi, Bag o’ Buds, SHRED, and Trailblazer.
In the fiscal third quarter ended May 31, 2021, although OGI’s gross revenue increased 30.9% year over year to $29.11 million, its net loss came in at $4 million. The company’s negative adjusted EBITDA grew 376.2% from the year-ago value to $10.18 million. Also, its net cash used in operating activities came in at $10.75 million, compared to net cash provided by operating activities of $313 thousand in the prior-year quarter.
The company’s EPS is expected to remain negative for the fiscal period ending August 2022. OGI has failed to surpass the consensus EPS in three of the trailing four quarters. Its stock price has declined 32% over the past six months.
It’s no surprise that OGI has an overall F rating, which equates to a Strong Sell in our POWR Ratings system. Also, the stock has an F grade for Value and Quality and a D grade for Momentum.
Click here to see the additional POWR Ratings for OGI (Growth, Stability, and Sentiment). OGI is ranked #211 in the same industry.
HRVSF shares were trading at $3.07 per share on Wednesday afternoon, down $0.09 (-2.85%). Year-to-date, HRVSF has gained 42.13%, versus a 17.93% rise in the benchmark S&P 500 index during the same period.
About the Author: Priyanka Mandal
Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research.
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