It is often said that the trick to success in the stock market not only rests on picking the right stocks but also on knowing the stocks to avoid. This sort of approach holds true when it comes to pot stocks as well, and it could be worthwhile for investors to have a look at some of the cannabis stocks that they might want to consider avoiding at this time.
The pot industry has gone through its fair bit of trouble over the past year or so, and many pot stocks have recorded significant declines during the period. Here is a look at three pot stocks that could be avoided by investors right now.
3 Pot Stocks to Ignore: HEXO Corp (TSX:HEXO) (NYSE:HEXO)
Despite being one of the more promising pot stocks a year ago, HEXO has been in the doldrums for quite some time. Its stock slumped to $0.50 apiece earlier this week and has fallen by 90% over the past year. HEXO has continued to dilute its stock in order to raise more cash.
In this regard, it should be noted that the cannabis industry at large has had problems involving oversupply, slow rollout of retail outlets, and also the consistent challenge posed by the pot black market. HEXO now has 344 million outstanding shares, as opposed to the 208 million back in January last year. It has sold its common stock at a discount, which suggests that the company is possibly desperate for fresh cash injections.
HEXO's Niagara facility, which spans 200,000 square feet, has not been utilized by the company in light of its cash crunch. The facility was passed to HEXO after the company acquired Newstrike Brands. In addition to all this, HEXO stock is now in danger of being delisted from the NYSE if it doesn't amend its stock price soon.
3 Pot Stocks to Ignore: Canopy Growth (TSX:WEED) (NYSE:CGC)
Canopy Growth may be the biggest cannabis company in the world by market cap, but the company is making certain moves that might make the stock a bit volatile at this point. On Thursday, Canopy announced that it is going to lay off 200 employees. This is a significant move considering the fact that Canopy furloughed 200 members of its staff only a week ago. Prior to that, Canopy Growth closed two greenhouses, laying off 85 employees in the process.
The company stated that it is trying to continue growing in the areas it has been performing well. That being said, investors should note that many of the provinces in Canada have designated cannabis dispensaries as essential services, meaning some companies are still able to generate some sales. That has, in fact, been one of the reasons why some pot stocks managed to record gains in recent weeks.
Another important thing for investors to keep in mind is that Canopy stock has recorded a bigger decline than the S&P 500 in 2020 so far.
3 Pot Stocks to Ignore: MedMen Enterprises (CSE:MMEN) (OTCQX:MMNFF)
MedMen stock has been one of the major losers among pot stocks this year so far after declining by 65%. Most of the companies in the cannabis sector have been suffering from cash problems, and in that regard, MedMen has been no different. However, in the case of MedMen, the problem has been far more acute, and it eventually started putting pressure on the stock price.
However, last month, MedMen received $12.5 million from its senior secured convertible debt facility worth $250 million. The credit facility in question is led by Gotham Green Partners.
Cash problems have been one glaring issue at MedMen in recent times. However, in addition to that, poor company decisions in its key market in California have also been an issue. California is one of the most lucrative cannabis markets in the industry, but MedMen’s poor handling of its interests in the state has been a major concern for many investors. Investors could do well to avoid MedMen stock for the time being and focus on other stocks instead.
Featured image: DepositPhotos © AndreyPopov