Thanks to rising tensions in Ukraine and the Federal Reserve’s mixed messaging on interest rates, Canadian marijuana stocks are having another tough go of it today. As of 2:55 p.m. ET on Monday, shares of Canopy Growth (NASDAQ:CGC) are down by a hefty 7.5%, Hexo‘s (NASDAQ:HEXO) stock is underwater by a noteworthy 11.5%, and OrganiGram Holdings‘ (NASDAQ:OGI) stock is down by 6.1%.
Monday’s sharp downturn among these three leading Canadian cannabis companies marks a stark reversal from their recent upward trajectory. Due to the slightly better-than-expected quarterly results posted by both Canopy Growth and Aurora Cannabis last week, the legal marijuana space was finally starting to show some signs of life. In fact, shares of Canopy Growth, Hexo, and OrganiGram all rose by double digits over the course of last week. These gains, however, are quickly being erased by this risk-averse market.
Why can’t Canopy Growth, Hexo, and OrganiGram maintain any upward momentum? Three big issues are weighing on these stocks at the moment. First off, the hype surrounding the possible legalization of cannabis at the federal level in the U.S. has completely vanished in the face of the harsh reality that President Biden hasn’t shown much interest in the topic since taking office nearly 13 months ago. Second, the top-tier Canadian licensed producers like Canopy Growth and Hexo haven’t been able to shift gears quickly enough to meet the market’s demand for high-THC products. As a result, craft growers like OrganiGram have slowly but surely started to strip market share away from these behemoths in recent months. Third, the overproduction of dried flower in the country has led to a steep drop in prices in the recreational marijuana segment of the market.
Are any of these stocks worth picking up on today’s pullback? Among these three names, OrganiGram comes across as the most compelling buy. By sticking to its business plan focused on growing high-quality cannabis, the company has made significant progress toward its key operating goals over the past two years. OrganiGram, in fact, ought to be cash flow positive on a consistent basis by no later than fiscal year 2024. The outlook for Canopy Growth and Hexo, on the other hand, is less certain. These two Canadian cannabis giants might be profitable sometime soon. But OrganiGram is the only one of the three that is almost a sure bet to achieve this all-important goal.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.