Navigating the Turbulent Cannabis Stock Landscape: A Cautionary Tale

The cannabis industry has been a rollercoaster ride for investors, with stocks gaining momentum in recent months following the federal government's reclassification of the drug. However, not all cannabis stocks are created equal, and experts warn that a combination of internal accounting and business factors could cause some to trail behind the industry's expected growth trajectory. In this article, we'll delve into three struggling cannabis stocks that investors should consider exiting by 2025.

Tread Carefully: The Risks and Rewards of Cannabis Investing

Canopy Growth (CGC): A Dominant Player Facing Stagnation

Canopy Growth (NASDAQ:CGC) is one of the leading cannabis stocks in Canada, but its growth numbers have yet to meet long-term expectations. The company has seen its share price plummet by more than three-quarters in the last year alone. While Canopy initially experienced a surge in revenue following the legalization of cannabis in Canada, accounting methodologies and other non-fundamental factors have driven more excitement than warranted.Canopy Growth continues to burn more cash than the revenue it's generating, as it aims to scale up production. However, the company has since dialed back its ambitions as demand in the Canadian market normalizes. The company seems to hold a dominant position in a rather stagnant market, as the high levels of taxation on cannabis have driven many consumers to the black market, denying the Canadian cannabis industry a significant portion of potential revenue.According to Wall Street analysts, the average 12-month price target for Canopy Growth is C.15, with a high forecast of C.01 and a low of C.73. This represents a -6.46% change from the last price of C.78. The company's sales estimates for the next quarter range from C.00 million to C.70 million, with the previous quarter's sales at C.79 million. Canopy has beaten its sales estimates only 50% of the time in the past 12 months, while the industry has beaten estimates by 53.9% during the same period. With this underperformance and no clear breakthrough strategy, investors are encouraged to reconsider their position in CGC stock.

Sundial Growers (SNDL): Burning Cash and Facing Volatility

Sundial Growers (NASDAQ:SNDL) is another top cannabis stock in the U.S. market, known for producing and distributing inhalable products such as flowers, pre-rolls, and vapes. The company has struggled with profitability and market competition in the cannabis sector, as the industry continues to evolve and the market becomes more crowded.Despite having over 0 million in cash and marketable securities, Sundial continues to burn cash, reporting a free cash outflow of .4 million in the first quarter of 2023, even with year-over-year improvements. If Sundial's retail profits deteriorate or its growth initiatives fail to pay off, the company may need to raise additional capital on less favorable terms.Investors should also be aware of Sundial's history of dilutive capital raises and its increasingly complex share structure, with multiple reverse splits. The stock is currently trading well below , with a market capitalization under 0 million, adding to the risk and volatility associated with the investment.Furthermore, Sundial's revenue declined sequentially from the fourth quarter of 2022 due to seasonality in its Liquor and Cannabis Retail segments. The company's retail businesses could face additional pressure if consumer spending weakens or competition intensifies. These factors position Sundial as one of the cannabis stocks that risk-averse investors should consider exiting by 2025.

Tilray (TLRY): Losing Money Faster Than Generating Revenue

Tilray (NASDAQ:TLRY) is a mid-level player in the U.S. cannabis industry, with additional product lines in distribution, beverage alcohol, and wellness. In 2023, the company acquired several brands, such as Anheuser-Busch, and doubled its alcohol segment. Tilray has also actively generated important sales diversification within the growing U.S. cannabis market as the industry sees more legalization efforts.Despite these strategic business moves, Tilray's financial reporting has not been favorable recently. The company is losing money at a faster rate than it is generating revenue. While it is yet to report its second-quarter earnings at the end of July, the first-quarter reports in February pointed to an actual EPS of -{{royaItemContent}}.12 against the estimate of -{{royaItemContent}}.05.Tilray's shares have rebounded slightly in recent weeks following the reclassification of cannabis as a less dangerous drug, but the stock still sits at .79, near its 52-week low and significantly lower than its pre-2020 highs of over 0. The growth projections for Tilray are not promising either, with analysts anticipating a slowdown in growth to 60% in the next quarter, compared to the current quarter's 86.7%. The growth rate is also expected to slow down in the next five years, with experts expecting the company to grow at just 37% amidst the projected industry boom.Given these growth projections, combined with the fact that the company is generating more losses than profits, any risk-averse investor would be wise to consider Tilray as one of the cannabis stocks to exit before 2025.