2 Cannabis Companies That Plunged More Than 24% Last Week

Owing to increasing state-level legalization of cannabis in the United States and the growing acceptance of marijuana for medical and recreational purposes, the cannabis industry has been gaining steam. The global legal cannabis market is expected to reach $91.5 billion by 2028, delivering  a 26.3% CAGR.

While many players in the cannabis space have been taking advantage of the industry tailwinds, some are struggling to stay afloat due to intense competition for market share. Furthermore, given that the industry continues to face barriers owing to the Senate’s disagreement over the decriminalization of marijuana at the federal level, cannabis stocks could witness significant volatility in the near term.

Given this backdrop, we think it is best to avoid cannabis stocks with weak fundamentals and poor growth prospects. Flora Growth Corporation (FLGC) and Hexo Corp. (HEXO) possess these characteristics and have declined more than 24% in price over the past week. So, these two stocks are best avoided now.

Click here to check out our Cannabis Industry Report for 2021

Flora Growth Corporation (FLGC)

Based in Toronto, Canada, FLGC is an internationally focused cannabis company that cultivates and sells natural, low-cost cannabis products to medical clinics, pharmacies, and cosmetic companies. In addition, it processes and supplies medicinal-grade cannabis oil, cannabis oil extract, and related products. Mambe, Mind Naturals, Almost Virgin, Flora Lab, and Stardog are some of the company's popular brands.

This month, FLGC signed a letter of intent (LOI) to acquire Vessel Brand Inc. (“Vessel”) to expand its premium brand portfolio. Although the acquisition could  diversify its global distribution channels, it could lead to a significant cash outlay in the near term.

In June, the company signed an LOI  to acquire 100% of the outstanding shares of Koch & Gsell and its wholly owned hemp brand, Heimat, based in Switzerland, for approximately $22.2 million. While this acquisition could enable FLGC to accelerate the distribution of its brands in the European market, it could weigh heavily on its expenses in the coming months.

For the six months ended June 30, 2021, FLGC reported $2 million in revenues. Its operating expenses stood at $6 million, while its net loss came in at $4 million. Also, its cash balance amounted to roughly $19 million as of June 30, 2021.

Analysts expect FLGC’s EPS to be negative for the current year. Also, its stock price has declined  25.7% since August 17.

Under POWR Ratings, the company has been accorded a “D” rating for Quality. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. Within the C-rated Agriculture industry, it is ranked #22 of 31 stocks.

Click here to see additional ratings for Sentiment, Stability, Growth, Value, and Momentum for FLGC.

Hexo Corp. (HEXO)

HEXO is a Canada-based producer, distributor, and seller of medicinal marijuana. The company sells its products under the Time of Day, H2, Decarb, and Elixir brands. In addition, it provides cannabis beverages under Little Victory, House of Terpenes, XMG, Mollo, and Veryvell brand names.

This month, HEXO announced the pricing of a $140 million public offering of 47,457,628 units. The company expects to use the net proceeds from the offering to fund a portion of the cash component of the Redecan acquisition and other expansion-related expenditures.

In June, the company completed the purchase of a 50,000 sq. ft U.S. manufacturing site in Fort Collins, Colorado, through a wholly owned subsidiary in the United States. While the transaction could expand HEXO’s market presence in the United States, it could negatively impact its cash balance in the near term.

During its third fiscal quarter, ended April 30, 2021, HEXO’s non-beverage Canadian adult-use revenue decreased 7% year-over-year, due primarily to a decline in sales in the province of Quebec. Its operating loss came in at CAD16.09 million ($13.06 million). The company’s net loss increased 6.1% year-over-year to CAD20.71 million ($16.81 million). Also,  its adjusted EBITDA came in at negative CAD10.78 million ($8.75 million) for the quarter.

HEXO’s EPS is expected to remain negative for its  fiscal period ending July 2022. Also, HEXO has failed to beat the consensus EPS estimates in three of the trailing four quarters. The stock has declined 24.7% in price since August 17 and 38.7% over the past month.

HEXO’s POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, which translates to Sell in our proprietary ratings system.

HEXO is also rated an F for Sentiment and Stability, and a D for Quality. Within the F-rated Medical-Pharmaceuticals industry, it is ranked #206 of 215 stocks.

Click here to see the additional POWR Ratings for HEXO (Growth, Value, and Momentum).

Click here to check out our Cannabis Industry Report for 2021

FLGC shares were trading at $10.86 per share on Tuesday morning, down $0.28 (-2.51%). Year-to-date, FLGC has gained 126.72%, versus a 20.67% rise in the benchmark S&P 500 index during the same period.

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.

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