These 4 Cannabis Stocks Are The Safest Bets Right Now, Expert Says

It has been a brutal couple of years for cannabis investors. With most leading stocks down even further since the COVID-19 outbreak, cannabis investors are now weighing whether to cut their losses or buy the dip in a bet on a rebound ahead.

Alan Brochstein, author of the 420 Investor and founding partner of New Cannabis Ventures, recently discussed his outlook for cannabis stocks on Benzinga’s daily PreMarket Prep podcast.

Failures Ahead

Brochstein said some cannabis companies are better positioned to weather the market volatility and economic uncertainty than others.

“There are going to be a lot of failures in the cannabis sector, unfortunately. The better cannabis companies were already doing things like sale leasebacks and accessing the debt market, which is very difficult to do,” Brochstein said.

He said the rest of the group is likely going to continue to struggle.

“In the United States, I think the very largest multi-state operators (MSOs) are probably the best positioned. They may have to re-trench in certain markets, but they’re probably much better-positioned,” he said.

He specifically mentioned the four biggest U.S. MSOs: Cresco Labs Inc CRLBF, Curaleaf Holdings Inc CURLF, Green Thumb Industries Inc GTBIF and Trulieve Cannabis Corp TCNNF.

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Challenges In Canada

Brochstein said the largest Canadian companies are facing a lot of challenges at the moment, including delayed store openings.

“These were empire builders that had money thrown at them left and right, and now they’re trying to manage these massive global empires, they’re burning cash left and right, and so it’s pretty challenging,” he said.

Aurora Cannabis Inc ACB in particular was down more than 15% on Monday after the company announced a reverse stock split and a new $350 million equity facility that stands to further dilute investors.

“What Aurora said today was 'Hey, we’re making some progress here, so we’re going to reverse-split (12-to-1) so we can keep our listing on the New York Stock Exchange,'” Brochstein said. “This is widespread across the industry, and I’ve been telling people to be very careful in this market. Everybody has to raise capital. Some of them will have to raise it or they’ll go out of business.”

Brochstein said the value of Canadian cannabis licenses has fallen essentially to zero.

“Licenses are worth nothing. What’s worth something right now is positive cash flow, and if you’re an investor, you need to understand what that is and go look for it,” he said.

Benzinga’s Take

The long-term outlook for the cannabis business remains bright, and there are multiple reports that the stay-at-home environment has actually ramped up cannabis demand.

However, given the difficult credit environment at the moment and the challenged balance sheets of many cannabis companies, investors can expect significant outperformance from the top-performing cannabis stocks relative to the bottom of the barrel.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

Listen to the full interview with Alan Brochstein at 37:10 in the podcast below, or watch the clip on Youtube here.

PreMarket Prep is a daily trading show hosted by prop trader Dennis Dick and former floor trader Joel Elconin. You can watch PreMarket Prep live every day from 8-9 a.m. ET here. The replay can be found on Benzinga's YouTube channel, and the podcast is on iTunes, Google Play, Soundcloud, Stitcher and Tunein.