The Canadian cannabis stocks we’ve weeded out have enough cash to sustain their operations for at least six quarters
SmallCapPower | April 9, 2020: Cannabis companies were facing a challenging business environment even before COVID-19, but this new crisis will likely put more than a few of these entities out of business. Those with strong cash positions and low operating expenses, however, will not only survive but should thrive when economic activity returns to more normal levels. Today we have identified three Canadian cannabis stocks that we think will best withstand this COVID-19 inflicted bear market.
*Share prices as at April 8, 2020, data obtained from S&P Capital IQ
Canopy Growth Corporation (TSX:WEED) – $20.83
Canopy Growth is the biggest cannabis company listed by market cap on the TSX and NYSE. The Company has the largest licensed production platform in Canada, with over 600,000 sq. ft. of production space. The Company has also secured the necessary agreements to export medicinal cannabis to Australia, Brazil, and Germany. While the quarterly cash burn is quite significant, newly-installed CEO by Constellations Brands – David Kline, is expected to rein in the spending, reduce expenses, and increase operating efficiencies; however it may be 8-12 quarters before the Company is profitable.
- % Fall From 52 Week High: 71%
- Last Quarter Cash Balance: $2,277.6M
- Quarterly Cash Burn (CFO – Capex): $359.6M
- Quarters Cash on Hand: 6.3 quarters
Cronos Group Inc. (TSX:CRON) – $8.49
Cronos Group has two wholly-owned Canadian licensed producers: 1) Peace Naturals Project Inc., a global health and wellness platform; and 2) Original BC Ltd., a recreational adult-use Canadian licensed producer that is located in Okanagan Valley, BC. Cronos Group’s quarterly cash burn rate (cash flow from operations minus capex) is approximately ~$49 million per quarter. With a cash war chest (CRON has 10 years of cash on hand), the Company can wait patiently for the right time to spend the money on acquisitions or R&D that will be accretive to EPS.
- % Fall From 52 Week High: 65%
- Last Quarter Cash Balance: $1,992.5M
- Quarterly Cash Burn (CFO – Capex): $48.5M
- Quarters Cash on Hand: 41.1 quarters
Aphria Inc. (TSX:APHA) – $4.45
Aphria produces and sells medical and recreational cannabis-derived extracts in Canada. The Company currently has a 1.1M sq. ft Leamington greenhouse facility, called Aphria ONE, which yields ~100,000 kg per year. The Company also has the Double Diamond facility, boasting a cultivation space of 1.3M sq. ft and yielding 140,000 kg annually. Additionally, the Company has a premium cannabis brand called Broken Coast, produced in a 4,500 sq. ft facility in British Colombia that yields ~7,000 kg annually. While Aphria has ~$450M in convertible debt, it is not due until 2024, giving the Company enough time to repay. APHA also announced recently a $100M equity investment from an unnamed investor.
- % Fall From 52 Week High: 67%
- Last Quarter Cash Balance: $497.7M
- Quarterly Cash Burn (CFO – Capex): $67.1
- Quarters Cash on Hand: 7.4 quarters
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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