It’s pretty safe to say that last year did not go as planned for a majority of marijuana stock investors. The belief had been that cannabis stocks would push decisively into the green, led by skyrocketing dried cannabis sales in Canada, the subsequent launch of derivatives, and more legalizations in select U.S. states. But supply issues constrained legal product in Canada, derivatives launched two months later than expected (in mid-December), and high tax rates have stymied adult-use sales in a number of U.S. states. Ultimately, most pot stocks lost money in 2019, and may continue to do so in 2020.
While the cannabis industry should make strides in 2020, it’s pretty clear how important having adequate cash on hand has become…
As we push headlong into the new year, the following five marijuana stocks currently boast the most cash on their balance sheets (as of the end of their most recent quarter). Note that “cash” includes cash, cash equivalents, and marketable securities, but not restricted cash.
1. Canopy Growth: $2.11 billion
As has been the case for some time now, Canopy Growth (NYSE:CGC) leads all pot stocks in the cash department with a little over $2.1 billion. Subtracting Canopy’s debt would mean that approximately 18% of the company’s current market cap is entirely covered by its cash.
Most of Canopy Growth’s cash derives from its November 2018-completed equity investment from Constellation Brands, the maker of Modelo and Corona beer. Constellation’s $4 billion investment netted the company a 37% stake in Canopy (this actually marked its third such investment), all while giving Canopy the capital needed to make acquisitions and expand into new markets. For instance, Canopy is using its cash hoard to build a hemp processing facility in New York State.
But the company has also been burning through its cash at an incredible pace. Over the past three quarters, Canopy’s cash, cash equivalents, and marketable securities have declined by about $1.7 billion. Yes, acquisitions are part of the reason for this decline. But another notable culprit is the company’s massive operating losses. A big jump in hiring and marketing costs has whittled away at Canopy’s enviable cash position and will likely do so again in 2020, even with a cost-conscious David Klein set to take over as CEO.
2. Cronos Group: $1.53 billion
The only other cannabis stock that’s carrying around more than $1 billion in cash is Cronos Group (NASDAQ:CRON). Like Canopy Growth, it was also lucky enough to attract an equity investor, which is why it has $1.53 billion in cash at its disposal.
In mid-March 2019, Cronos closed an equity investment from tobacco giant Altria Group for $1.8 billion. The deal gave Altria a 45% stake in Cronos, as well as a means to expand its sales channels beyond just U.S. tobacco. As a reminder, adult cigarette smoking rates have declined to an all-time low in the United States, which certainly encouraged Altria to seek out the lucrative long-term growth opportunity that cannabis offers.
To date, Cronos Group has only made one major acquisition, the $300 million deal to buy Redwood Holdings, the owner of the Lord Jones brand of beauty products infused with cannabidiol (CBD). Three-quarters of the purchase price of this deal was cash. Although Cronos Group continues to lose money on an operating basis, its losses are nowhere near the level of Canopy Growth. That gives it an outside chance of becoming the cash leader in the marijuana space by the end of 2020.
3. GW Pharmaceuticals: $554.7 million
Even though management doesn’t enjoy its company being lumped in with marijuana stocks, cannabinoid-focused drug developer GW Pharmaceuticals (NASDAQ:GWPH) is rolling in the green. It ended its most recent quarter with nearly $555 million in cash at its disposal.
As the only non-grower on this list, it’s not really a big surprise that GW has this much cash at the ready. Drug developers need a lot of capital to research new therapies, run clinical studies, launch new drugs, and properly market them if approved. Don’t forget that Epidiolex, the company’s leading oral treatment for two rare types of childhood-onset epilepsy, launched in November 2018. This means the company is still working hard to ensure proper insurance coverage and physician awareness of this top-selling drug.
GW Pharmaceuticals will be looking to expand Epidiolex’s label, as well as garner success beyond its potential long-term blockbuster. This year might also be when the company makes its first push into profitability, but only time (and Epidiolex’s ongoing ramp-up) will tell…
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