Two very powerful members of the U.S. Senate — Senate Majority Leader Chuck Schumer and Senate Finance Chairman Ron Wyden — last month reintroduced legislation that would take cannabis off the list of federal controlled substances. In my view, the legislation would therefore legalize the use of cannabis at the federal level, even though it appears that the senators are avoiding that term.
Indeed, “The bill would automatically expunge federal marijuana-related convictions” and “establish a federal Center for Cannabis Products to regulate production, sales, distribution and other elements of the cannabis industry,” The Missouri Independent reported.
The legislation does still prohibit the selling of marijuana in states in which it is illegal. But it appears that if the bill passes using the drug anywhere in the country and selling it in states where it’s allowed would be legal in Washington’s eyes.
Given Republicans’ eagerness to curry favor with young voters and swing voters heading into the 2024 elections, I believe that this bill could very well pass this year. By providing cannabis companies with access to all federal tax breaks and U.S. banking services, the bill would provide the sector with a huge, positive catalyst. Here are three cannabis stocks to buy on the dip.
Aurora Cannabis (ACB)
Aurora Cannabis (NYSE:ACB) stock tumbled 45% between May 1 and June 21. But the company’s fiscal fourth-quarter results, reported on June 20, show that it is benefiting tremendously from the growth of its medical cannabis business. Specifically, last quarter the company’s global medical cannabis net revenue jumped 20% versus the same period a year earlier to $45.6 million helping its gross margin, excluding certain items, climb 8% year-over-year to $33.3 million. Further, the company continues to expect to start generating positive free cash flow by the end of this year.
Meanwhile, Aurora continues to expect to benefit from the decriminalization of cannabis in Germany. That’s because Aurora is a leading seller of the drug in the European country. Under a new German law, doctors will have a much easier time prescribing cannabis and possessing it will be legal in much of the country.
Also importantly, Aurora CEO Miguel Martin stated on its earnings call that the company would “be in a great position…when the U.S. legalizes” cannabis. Supporting that position, Martin stated that Aurora’s position as “one of the largest (cannabis providers) in North America” would help it deal successfully with America’s Food and Drug Administration.
ACB stock has a low price-to-sales ratio of 1.4 times. As of the end of March, it had $148.5 million of cash and only $103.3 million of debt.
Tilray Brands (TLRY)
Like Aurora, Tilray Brands (NASDAQ:TLRY) is very well-positioned to benefit from the decriminalization of cannabis in Germany. That’s because the company has a market share of 25% “in the German medical and therapeutic cannabis market,” Seeking Alpha columnist Ahmed Abdelazim reported.
What’s more Tilray CEO Irwin Simon told Barron’s in April the Biden’s administration’s ongoing reclassification of marijuana, which kicked off during that month, “paves the way for the establishment of a federally legal medical cannabis industry.” The CEO added, “We believe that we are well-positioned and ready to participate in the medical cannabis market in the U.S..”
Also importantly, Tilray’s cannabis gross profit, helped by various acquisitions, came in at $20.9 million last quarter versus a gross loss of $32.8 million in Q1 of 2023. Further, it burned $15.4 million of net cash, down from $18.6 million during the same period a year earlier.
Tilray’s diversification into the U.S. beer business, greatly advanced by its acquisition of eight beer and beverage brands from Anheuser-Busch InBev (NYSE: BUD) last September, should make its financial results more predictable and give it a powerful growth engine. The company reported that it has become America’s fifth largest craft brewer.
TLRY stock sank 41% between April 3 and June 21.
Canopy Growth (CGC)
Canopy Growth’s (NASDAQ:CGC) revenue climbed to $53.7 million last quarter from $50.5 million in Q1 of 2023. The company’s sales jumped an impressive 31% year-over-year in Canada. Moreover, its operations burned only $16.3 million of cash last quarter, way down from $103.4 million of cash that they utilized during the same period of 2023.
Canopy expects Germany’s medical cannabis market to expand meaningfully in the wake of the country’s decriminalization of the drug and the company expects to benefit meaningfully from the change. Also importantly, Canopy predicts it will deliver “healthy growth” in both its home market of Canada and its overseas markets during its current fiscal year which began in April.
Canopy will soon own multiple U.S.-based cannabis brands, leaving it well-positioned to benefit from America’s likely legalization of the drug in the medium- to long-term.
CGC stock has fallen by over 50% since April 30, leaving it with an attractive price-to-book ratio of 1.4 times and making it one of the best cannabis stocks to buy on the dip.
On the date of publication, Larry Ramer held a long position in ACB. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
