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If people had chosen to use marijuana to alleviate stress and pain, instead of prescription drugs pushed by the Sackler family, hundreds of thousands of lives may have been saved. In the intermediary stage before marijuana is completely legalized, take note of marijuana stocks that are currently undervalued.
Two Undervalued Marijuana Stocks
Even though cannabis demand rose significantly during the peak of the coronavirus pandemic, you will still find undervalued cannabis stocks. As the marijuana industry enters the mainstream stage, it still has to struggle with a thriving black market that doesn’t have to worry about:
- Regulatory compliance
- The cost of running marijuana dispensaries and shops
Nonetheless, as consumers take more responsibility for the quality and safety of marijuana products, the black market will winnow down. Marketing, removal of governmental restrictions, and consumer habituation will be the key factors to make that happen. Declaring pot shops as essential by over dozen states is just a prelude for the good times ahead.
When it comes to investing, Canada is known for its forex brokers. Yet cannabis stocks are quickly gaining in popularity as well. Take a look at these two undervalued marijuana stocks from Canada: Aphria and Aurora Cannabis.
Not fully accounting for the lingering black market, Aphria got ahead of itself. Consequently, it oversupplied the demand for legal cannabis products. This translated to Aphria’s net loss for the last financial year, generating CAD$134 million in gross profits but spending CAD$142 million to make those profits.
Moreover, over the last two years, Aphria acquired Colombian Colcanna, Argentinian ABP, and almost half of Jamaican Marigold. It is apparent now that these were overpaid acquisitions as they are currently valued at CAD$87.2 million. This represents a stark difference from the CAD$300 million used to buy them.
Still, Aphria has plenty of cash left. It concluded May with $497 million despite losing $85 million during 2020. At the same time, Canadian marijuana use grew by 20% in the last fiscal quarter. However, in that same period, Aphria sold 10% less of its pot products.
It remains to be seen if Aphria tweaks its marketing and run costs, but it certainly has ample time to do it and see all of its investments pay off in the end. In the interim, stock traders have an opportunity to get a hold of Aphria’s shares at very low value.
Following similar troubles as Aphria, Aurora Cannabis produced more than the market demanded. This led it to lose 56% of shares value in 2020, effectively halving its book value.
In an effort to stop the bleed, Aurora Cannabis embarked on radical restructuring, laying off hundreds of staff and closing down facilities.
Put into numbers, we can see why Aurora implemented these drastic measures. At the end of this March, Aurora gained $230 million in sales but lost CAD$1.48 billion following nine months up to March. Nonetheless, Aurora enjoys the goodwill of its customers and holds a hefty total sum in assets of $2.92 billion.
With both of these marijuana stocks, we are dealing with a high-risk, high-reward situation. Their shares price could still go down. However, given their deep pockets, customer loyalty, and steadily rising demand for their products, this window will likely close soon.
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Disclosure: Tim Fries has no positions in any of the stocks mentioned, and has no plans to initiate any positions within the 72 hours following the publishing of this article. This article expresses the opinions of Tim Fries. Tokenist Media LLC has no position in any of the stocks mentioned, and does not plan to initiate any positions within 72 hours of the publishing of this article. Please consult our website policy for more information.