Exclusive Cannabis Index Points to 1 Winner — and 2 Losers
- The cannabis sector sank in the second quarter due to two scandals.
- Banyan Hill’s exclusive Green Flag Index helps predict cannabis stocks’ performance.
- Anthony Planas shares how eight companies stack up on the index today — including two to avoid.
In May, I collaborated with a group of Banyan Hill analysts to create the first ranking system for cannabis stocks: the Green Flag Index.
It measures what we’d pay for a company based on how much product it sells — kilograms produced and average price per gram.
We blended each company’s current and future production to create the index. The higher the rating in the index, the more we pay for a producer.
Four months on, it did a great job of telling investors the best — and worst — picks.
Our Proprietary Pot Stock Index
Take a look at the chart below.
The green line represents Tilray Inc., the purple line is Cronos Group Inc. and the blue line tracks Aphria Inc.’s performance.
Cronos Group and Tilray were the most expensive according to the Green Flag Index. But back in May, I told readers to avoid Tilray.
Since then, Tilray lagged the ETFMG Alternative Harvest exchange-traded fund (ETF) by 6.5%. Cronos stayed closer to par, lagging 2.3%.
The ETF measures the performance of companies within the cannabis industry. Cronos, Tilray, Canopy Growth Corp. and Aphria are some of its top holdings.
Shares of the “cheapest” pick, Aphria, outperformed the index by 21.7%!
We’ve just updated our index. Here are the names to take a closer look at — and two to avoid.
2 Big Names Drag the Cannabis Sector Down
Watch my video below to catch the latest marijuana market news. I rate five stocks as buy, sell or hold — you don’t want to miss out.
The cannabis sector sank lower through the second quarter. A few bad names dragged down the entire sector.
Health Canada, the Canadian cannabis regulator, caught Canadian producer CannTrust Holdings Inc. illegally growing marijuana.
And the U.S. Department of Agriculture (USDA) sent a warning letter to Curaleaf Holdings Inc. over unsubstantiated medical claims. That killed the company’s CBD deal with major drugstore chain CVS.
All this means the entire cannabis sector is cheaper. Take a look at our Green Flag Index table below.
Based on our index, the major Canadian producers average about 32.
CannTrust is the cheapest, but we know not to touch the company.
Health Canada revoked its production license. The future is uncertain for CannTrust, so we don’t want to take an outsized risk.
But there are some positive outlooks within the marijuana industry.
Green Flag Index Points to New Opportunities
Aphria is one of the oldest names in the Canadian cannabis space. Regulatory hurdles and management missteps held back its potential until recently.
With new leadership, Aphria is refocusing on becoming a low-cost producer. It’s making cannabis products for the health and recreation markets.
Positive earnings and cost cutting caused shares to rally.
And Hexo Corp. is below the average, but its shares continue to trend lower.
Companies with the highest premiums made deals with major alcohol or tobacco companies. These are companies such as Canopy Growth, Tilray and Cronos.
Canopy Growth is in a transition period after its CEO, Bruce Linton, was let go in July.
Tilray and Cronos lag in production volume. We want to see sales volume increase to justify the rich premium.
Tilray and Cronos have both fallen by a third since we started tracking the Green Flag Index. But they still look overvalued compared to their peers.
There are better opportunities in the sector.
In our Real Wealth Strategist newsletter, we hold only one of the companies from the table above. It’s a company that still has great value!
Internal Analyst, Banyan Hill Publishing
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