After such a promising start to the year it’s safe to say that 2021 has been a bust for Canadian cannabis. Most names in the space now down by plenty, which seems to speak to the market’s skepticism about both growth prospects in the maturing industry and the current glut of pot product and pot companies trying to elbow their way into market share. 

There are roughly two camps to the Canadian picture, the bigger players with billion-dollar market caps and then there’s the rest, which means medium-sized and smaller operations now trying to pull away market share from the larger operations. 

Ultimately, you’ve got a full range of companies, from primarily bulk cannabis growers to premium weed cultivators, from extraction operations to CPG-focused companies. Some of them are loading up on edibles and vapes while others stick to flower, some are domestic-only operations whereas others have international ambitions. 

For a long time, cannabis stocks moved as a pack with little differentiation among the names, but the market is finally starting to recognize solid and sustained execution from individual companies. Which means now more than ever the job of the investor is to separate the wheat from the chaff, to recognize both the under-performers and the ones punching above their weight.

Canopy Growth Corp (Canopy Growth Stock Quote, Charts, News, Analysts, Financials TSX:WEED)

• Market cap: $6.1 billion
• LTM Revenue: $568.5 million
• 12-month return: -57 per cent

Perhaps the most well-known among the bunch, early on Canopy Growth definitely served as a bellwether name and stock for the sector as a whole. Even in the days leading up to legalized pot in Canada, Canopy had production facilities coming online from coast to coast, it was signing provincial supply agreements left and right and a multi-billion dollar investment from US alcohol giant Constellation Brands was a prime catalyst for pot stocks across the board, juicing valuations and giving a new legitimacy to the sector.

In the same way, when Canopy’s troubles arrived a couple of years ago, involving huge quarterly losses and stagnant revenues, the same woes were felt industry-wide as supply issues and general growing pains plagued the market. Canopy fired mercurial CEO and sector spokesperson Bruce Linton and replaced him with David Klein, a Constellation man who has since been working to tighten up operations and stop the losses, so far to varying degrees of success, as the company has been reporting declining revenue numbers for the past few quarters.

But Canopy made some big moves in 2021, as well, including acquiring craft cannabis growing Supreme Cannabis to catch more of the premium pot market and announcing another potential acquisition in the US where it now has a boatload of optionality if and when cannabis becomes legal at the federal level.

Tilray (Tilray Stock Quote, Charts, News, Analysts, Financials TSX:TLRY)

• Market cap: $5.0 billion
• LTM Revenue: $572 million
• 12-month return: +44 per cent

Nanaimo, BC’s Tilray brought marijuana to the attention of many investors south of the border back in 2018 when it debuted on the NASDAQ and quickly quadrupled in value. But the stock has since settled down and unfortunately its dismal showing over the past ten months is emblematic of the sector as a whole.

For fans of Tilray, its merger earlier this year with another Canadian powerhouse, Leamingon, Ontario’s Aphria, was a moment to ponder how big the company had become. Pro forma, the new Tilray’s revenue is at almost $900 million per year and its market share in Canada’s pot sector is now in the high teens. Tilray is also heavily invested in the United States in the form of craft brewer SweetWater and CBD, wellness product company Manitoba Harvest and an optionality stake in cannabis retailer MedMen.

Tilray is “the most attractive Canadian operator by some distance,” said Jefferies analyst Owen Bennett in an October report to clients. And with international assets from both Aphria and Tilray on hand, the company’s sights are set on the big picture, with Chairman and CEO Irwin D. Simon saying that one of Tilray’s prime objectives is to capitalize on the $200 billion global cannabis opportunity.

“We believe we are ideally-positioned to succeed due to our global consumer-packaged goods expertise and scale, our diverse portfolio of brands, our reputation as a trusted supplier of high-quality cannabis, battle-tested leadership and a relentless focus on driving sustainable shareholder value,” Simon said in an October press release.

Cronos Group (Cronos Group Stock Quote, Charts, News, Analysts, Financials TSX:CRON)

• Market cap: $2.2 billion
• LTM Revenue: $56.6 million
• 12-month return: -43 per cent

Cronos Group got a lot of props early on for being an early Canadian pot company on a US exchange and then in 2018 announced that tobacco giant Altria would become a 45 per cent owner of Cronos through a $2.4 billion investment. That catapulted Cronos into the big leagues and gave it enough firepower to follow through on its plans to grow an empire. 

But the company has stayed surprisingly small-time so far, staying well below the $100-million mark in annual sales and recently raising eyebrows by reporting a delay in filing its quarterly financials, saying it expects to impair a goodwill charge of at least $220 million. The stock has been on a long downhill since early this year.

Aurora Cannabis (Aurora Cannabis Stock Quote, Charts, News, Analysts, Financials TSX:ACB)

• Market cap: $1.7 billion
• LTM Revenue: $238 million 
• 12-month return: -15 per cent

Edmonton, Alberta-headquartered Aurora Cannabis was another ‘go big or go home’ name in the early days, building cannabis facilities internationally as well as in multiple locations across Canada while spending hundreds of millions to hoover up smaller pot co’s and establish a dominant position. And while the company is still one of Canada’s major players, Aurora’s actions over the past couple of years have shown its growing pains including the shuttering of half-completed facilities and announcing inventory write-downs on pretty much a quarterly basis.

But Aurora’s general paring down of operations aims to make a more nimble and efficient business, one which the company sees as putting it on the right path. Its most recent quarter showed a ten per cent sequential uptick in revenue, for instance, with strong margins for its medical cannabis business and a greater focus on higher-margin premium flower brands. 

Village Farms International (Village Farms International Stock Quote, Charts, News, Analysts, Financials TSX:VFF)

• Market cap: $799 million
• LTM Revenue: $245.4 million
• 12-month return: -26 per cent

BC-based Village Farms was and still is a major greenhouse vegetable grower in the US and Canada with partnerships in Mexico as well, but the company decided to go into the cannabis game in the years leading up to Canadian legalization through a joint venture Pure Sunfarms out of Delta, BC. Last year, Village Farms took over 100 per cent ownership of Pure Sunfarms and hasn’t looked back, consistently delivering strong EBITDA margins and currently standing as the Canadian pot producer selling the most dried flower. 

Raymond James analyst Rahul Sarugaser calls VFF the best cannabis company in the Canadian industry and says it’s the most capital-efficient, lowest-cost producer of high quality pot in the country. Importantly, Sarugaser said earlier this month in a report to clients that Village Farms is gaining market share (currently at about seven per cent) whereas its large-company competitors are losing theirs to the wider market.

“Whether clients are focused on the sector momentum, or are simply looking for intrinsic value driven by strong operations, VFF, in our view is—bar none—the best Canadian cannabis operator, providing investors the opportunity to ride sector sentiment and be invested in a fundamentally strong, profitable company,” wrote Sarugaser in a November 9 update to clients.

Organigram Holdings (Organigram Holdings Stock Quote, Charts, News, Analysts, Financials TSX:OGI)

• Market cap: $770 million
• LTM Revenue: $79.1 million
• 12-month return: +52 per cent

Organigram hails from Moncton, New Brunswick, and has indoor grow facilities for the medical and rec cannabis markets, currently holding a Canadian market share of about 7-8 per cent which is currently fourth among Canadian companies. The company was hit hard by the pandemic which impacted production and caused a major layoff of its workers, but OGI has turned things around more recently, delivering a 22 per cent uptick in revenue in its latest quarter and showing strong demand for its SHRED line of products. Earlier this year, Organigram announced a $221-million strategic investment from British American Tobacco (BAT), representing about a 20 per cent stake in the company, with the two planning to collaborate on R&D in the cannabis field.

Raymond James analyst Rahul Sarugaser said Organigram has boosted revenue through its popular SHRED value-priced offerings but gross margins are thin in that respect, with Sarugaser saying a stronger move into more profitable categories like gummies and wellness products could help the company’s bottom line.

Commenting on Organigram’s fiscal fourth quarter 2021 in a November 23 update to clients, Sarugaser wrote, “Already in 4Q21 we see OGI improving its operational efficiencies, escalating its cannabis yield per plant +ten per cent QoQ (28 per cent year-over-year), leading, in part, to the largest volume harvest in the company’s history (+44 quarter-on-quarter). We anticipate OGI continuing to drive these operational efficiencies into fiscal 2022.”

High Tide (High Tide Stock Quote, Charts, News, Analysts, Financials TSXV:HITI) 

• Market cap: $465 million
• LTM Revenue: $152.2 million
• 12-month return: +158 per cent

High Tide is a cannabis accessories and retail cannabis outlet company headquartered in Calgary and founded in 2009. The company has over 100 retail stores across Ontario, Manitoba, Saskatchewan as well as Alberta, where they have the largest number of stores among retailers in the province. High Tide recently made the move of effectively becoming a discount club cannabis retailer for Canada by converting its Canna Cabana stores to a discount club model, offering members access to lower prices and exclusive deals in a Costco-type way. 

ATB Capital Markets analyst Frederico Gomes said after positive signs from a pilot program adopted earlier this year, HITIs new model may produce a decrease in gross margins but higher sales per store, although there are risks involved.

“In our view, HITI’s strategic shift is a reaction to the fierce competition in the Canadian cannabis retail market, with deep discount retailers significantly undercutting prices. We view a discount club as a way for HITI to capture market share and differentiate itself from other retailers while building customer loyalty and brand equity. We note, however, that a discount club model would have to be adapted to the unique circumstances of the Canadian cannabis market, therefore carrying uncertainty and execution risks,” Gomes wrote in an October 20 report.

Gomes has an “Outperform” rating for HITI with a $14.00 target, which at the time of publication represented a total projected return of 48 per cent.

HEXO Corp (HEXO Corp Stock Quote, Charts, News, Analysts, Financials TSX:HEXO) 

• Market cap: $445 million
• LTM Revenue: $134.3 million
• 12-month return: -70 per cent

HEXO’s fall from grace over the past couple of years has been dramatic even by cannabis  standards. The Gatineau, Quebec-based company was seen as a real contender for a while but layoffs, suspension of operations at some of its facilities and quarterly write-downs have all made the picture on HEXO more than a little gloomy. The company did an executive shakeup and has a new CEO but questions remain. 

In October, the company’s auditor PricewaterhouseCoopers LLP raised concerns about HEXO’s financial reporting, saying in a report, “The company has suffered recurring losses from operations, has had cash outflows from operating activities and has financial liabilities that may require significant cash outflows over the next twelve months.”

ATB analyst Frederico Gomes gave HEXO an “Underperform” rating in a late-October report, saying there’s a lack of visibility over the path forward for the company.  

“HEXO is undergoing an uncertain corporate transformation as it integrates three acquisitions with a recently- appointed CEO. Funds on hand are insufficient to support debt repayment, therefore increasing dilution risk,” Gomes wrote.

Auxly Cannabis Group (Auxly Cannabis Group Stock Quote, Charts, News, Analysts, Financials TSX:XLY)

• Market cap: $219 million
• LTM Revenue: $73.7 million
• 12 month return: -50 per cent

Vertically integrated cannabis company Auxly has operations across Canada and is based in Toronto. The company has a number of brands in its stable including Kolab Project, Robinsons, Dosecann, Foray and Back Forty and has the distinction of being the top-selling Canadian company for Cannabis 2.0 products with its vapes, edibles and topicals. Auxly also has a strategic partnership with tobacco giant Imperial Brands.

Research Capital analyst Venkata Velagapudi is a fan, saying in a November 15 update to clients that Auxly’s market share is its enduring strong suit.

“In our opinion, a sustainable market-share in the Canadian adult-use cannabis market should mainly determine a Canadian LP’s intrinsic value. Based on our analysis, Auxly is undervalued considering its current market-share and valuation,” Velagapudi said.

“Over the long term, we believe that visibility over positive free cash flow generation will be critical in improving the valuation for Auxly. Although we expect the margins to dilute due to growing portion of cannabis 1.0 sales, we believe that growing revenue base will offset the impact of declining margins leading to an increase in EBITDA gradually,” he said.

With the report, the analyst reiterated his “Buy” rating and $0.45 per share target price for a projected one-year return of 67 per cent at the time of publication.

Delta 9 Cannabis (Delta 9 Stock Quote, Charts, News, Analysts, Financials TSX:DN)

• Market cap: $42 million
• LTM Revenue: $59.7 million
• 12-month return: -38 per cent

Winnipeg-based Delta 9 Cannabis is both a retailer and a licensed cannabis producer and wholesaler. The fast-growing company has now 16 stores in Canada. And the company aims to keep expanding its retail presence across the country, opening four retail outlets over its last reported quarter. Delta 9 is also EBITDA-positive over its most recent quarters.

Research Capital Corp analyst Venkata Velagapudi reported on the company in a November 2 update to clients, saying his bull thesis on Delta 9 relies on its retail expansion strategy across Canada, and Velagapudi sees a big valuation gap between the stock and its peers.

“Based on our analysis, the current market price of Delta 9 implies a large valuation gap within the Canadian universe of cannabis retail players and LPs. We believe that the expansion of Delta 9’s retail footprint and wholesale revenue generation beyond Manitoba will be the key triggers for Delta 9’s share price,” Velagapudi wrote. 

“Margin improvement driven by Delta 9’s focus on ancillary sales, incremental sales by data sharing and premium shelf space agreements with LPs may lead to an expansion of valuation multiples. Visibility over the sustainability of Delta 9’s market share in retail and wholesale segments will be a key catalyst for the stock price, over the long-term,” the analyst said.

With the update, Velagapudi maintained his “Buy” rating for Delta 9 and $1.00 target which represented a projected one-year return of 156 per cent at the time of publication.