As a registered portfolio manager, I have never invested client money in cannabis and for good reason:
- the cannabis industry does not yet measure up to the high standards required by most institutional investors and
- there is considerable distance between fact and fantasy.
Of the total 5100 companies we rank weekly there are only 400 [7.8%] that we consider as viable candidates for investment [and of those only 16 cannabis stocks generate the data necessary to evaluate them properly and]…we ranked those companies below on:
- Balance Sheet,
- Relative Valuation, and
- Risk, with each getting a
- Composite Average Ranking…
1. Based on Composite Ratings, only OrganiGram Holdings (OTCQX:OGRMF) (at 6.25 out of a highest 10 score) and Aphria (at 6) had scores typical of S&P 500 company average performance…
2. Relative to Earnings, only OrganiGram (10) and Aphria (9) were acceptable on that basis.
3. Based on the Fundamentals strength… the acceptable companies were CannTrust Holdings (9 out of a highest 10) followed by Aphria (8), Aurora Cannabis (8) and OrganiGram (7).
When I hear or read about the grandiose performance these companies are going to have two or three years out, I tune out but, if the Earnings and Fundamentals Ratings are acceptable and improving, then on a trading basis I think the interest level for any company in this industry is justified.
4. Based on Relative Valuation to the broad market…In the case of almost every cannabis company, the valuation multiples were awful [with] none being truly acceptable to conservative investors….[Only] Canopy Rivers (scoring a 6) came close for consideration.
5. Based on Risk, (which looks at 5-year and 90-day stock performance measures, including volatility, magnitude of returns, beta and correlation of returns to the S&P 500) the only acceptable companies were Hexo (8), which was the least risky, followed by CannTrust, Aurora Cannabis and OrganiGram, each of which scored an acceptable 7 out of 10…
- TGOD (Green Organic Dutchman) is one that will make it and thrive long-term and I own the stock. The only one I own. They have the best grower, solid management and Tim Seymour on their board.
- HEXO also should be good, but their CEO is terrible. They have a lot of greenhouse capacity that produces bunk weed. HEXO’s value is in its relationships with government and Molson (TAP). They are a take-over target…
…My bottom line on the subject: most exchange-listed cannabis companies are terrible businesses that I will not invest in. Personally, I’m waiting for the right time to buy put options.