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3 Cannabis Stocks to Avoid in December

While cannabis stocks have rebounded lately due to Joe Biden's election win, there are still many stocks that investors should ignore. This includes Tilray (TLRY), Hexo (HEXO), and Sundial Growers (SNDL). Read more to find out why.

Cannabis stocks have been on a roll of late, some rising to new 52-week highs. Recreational cannabis is set to be legalized in several more states. Furthermore, there is the potential for legalization on the federal level during the upcoming Biden-Harris administration.

It is often said that a rising tide lifts all boats. However, this metaphor is not proving exactly true for the cannabis sector in 2020-2021. If you look at the industry as a whole, you will find plenty of publicly traded companies in this space that are unworthy of your investing dollars.

Below, we shed light on three cannabis stocks to avoid as the year winds down: Tilray (TLRY), Hexo (HEXO), and Sundial Growers (SNDL).

Tilray (TLRY)

TLRY is a pharmaceutical business that makes medicine, oil, drops, and drugs that are cannabis based. TLRY dropped all the way from $19 to $2 amidst the coronavirus selloff. Though the stock moved back up above $10, it has since dipped right back down below $8.

The POWR Ratings make it clear TLRY is unworthy of your money. The stock has an "F" grade in the Buy & Hold Grade component and "C" grades in the Peer Grade and Trade Grade components. Furthermore, TLRY is ranked outside of the top 100 in the Medical - Pharmaceutical industry. All in all, 240 stocks are in this industry.

Of the eight analysts who have cover TLRY, five have a "Hold" rating, two advise selling, and only rates it a "Buy." Part of the problem with investing in TLRY is the company is steadfastly focused on developing medicinal cannabis products rather than recreational ones. Furthermore, TLRY is overly-focused on selling its products to Europeans while largely neglecting other markets.

TLRY's recent third-quarter results underwhelmed, with revenue coming in nearly flat from the same period a year ago. TLRY's comparably small recreational cannabis business spiked 26% compared to the year prior. Yet, the rise did not make much of a meaningful impact on the bottom line, as TLRY is primarily trying to make money through medicinal products.

Hexo (HEXO)

Savvy investors are willing to entertain all potential ways to make money from the legalization of cannabis. As an example, the companies that package cannabis products receive little attention from the mainstream media yet could emerge as big winners as cannabis goes mainstream. One such company, HEXO, appears to have potential, yet that potential might go unfulfilled. HEXO makes and distributes packaging and other products that serve the cannabis market across the globe.

Check out HEXO's POWR Ratings components, and you will find the stock has a gloomy outlook. Hexo has an "F" grade in the Buy & Hold Grade component along with a "D" Peer Grade. Furthermore, analysts have a bearish outlook for HEXO, setting an average price target of a mere 73 cents, indicating a potential 26% downside. Of the five analysts who cover HEXO, four recommend holding, one advises selling, and zero recommend buying.

HEXO recently traded downward even though the House passed a cannabis decriminalization measure. It appears as though HEXO brass will soon vote on a reverse stock split, a move that is commonly viewed as a bearish sign for the stock's outlook.

Sundial Growers (SNDL)

SNDL is one of many pharmaceutical companies that produce and grow cannabis. SNDL was trading at $3.50 before the pandemic, slid down to under a dollar, and is currently trading around 50 cents per share. The POWR Ratings show SNDL has an "F" grade in the Buy & Hold Grade component. The stock also has a "D" grade in the Peer Grade and Trade Grade components.

Analysts have established an average price target of 25 cents for the stock, a potential 50% downside. The departure of SNDL's CEO, combined with the prospect of numerous lawsuits and diminished shareholder confidence, could lead to SNDL's delisting at some point down the line.

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TLRY shares fell $0.02 (-0.25%) in after-hours trading Thursday. Year-to-date, TLRY has declined -52.89%, versus a 15.58% rise in the benchmark S&P 500 index during the same period.



About the Author: Patrick Ryan

Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management.

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