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2 Promising Pot Stocks To Avoid Right Now

Female scientist in a hemp field checking plants and flowers, alternative herbal medicine concept
Female scientist in a hemp field checking plants and flowers, alternative herbal medicine concept

Investors are fast losing interest in pot stocks because they are losing money. Likewise, the legal marijuana industry is not entirely up to speed yet. If you don’t want your money to go up in smoke, skip pot stocks in the meantime. Steep declines are ahead as well as steeper losses.

Village Farms (TSX:VFF)(NYSE:VFF) and Supreme Cannabis (TSX:FIRE) are promising pot stocks but not ripe for the picking. While the extra-low prices are enticing, don’t take it as buying opportunities. Maintaining a wait-and-see attitude is the practical thing to do right now.

Faltering grower

Village Farms is showing a healthy bottom line after posting a net income of $9.9 million in the second quarter. The Pure Sunfarms joint venture delivered the goods, but it wasn’t enough to propel the stock.

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This longest-operating vertically integrated greenhouse grower continues to grow and sell greenhouse produce like bell peppers, cucumbers, and tomatoes. However, it’s anchoring its growth on marijuana.

Village Farms is focusing on the Canadian market. However, it hopes to penetrate the lucrative hemp market in the U.S. The company has started growing hemp outdoors across the border to sell hemp biomass in late 2019. By 2020, Village Farms plan to sell CBD oils.

But the risk or downside to investing in Village Farms is the lack of exposure in Europe and other international markets. It would be a challenge when the supply in Canada eventually exceeds demand. The company would have no catch basin.

The heat is gone

Supreme is in limbo at the moment. Despite posting a 90% quarterly revenue increase, the stock continues to drop. As of this writing, FIRE is trading at $1.10 and could fall below a dollar anytime soon.

Navdeep Dhaliwal, CEO of Supreme, said, “Our positive adjusted EBITDA and significant revenue growth in the fourth quarter reflects the rapid scale of our 7ACRES business and continued strong sales pricing for our brands from the provinces as we transition our premium supply to recreational sales channels.”

Management is projecting net revenue of between $150 million and $180 million and a positive adjusted EBITDA for fiscal 2020. Despite the reassuring statement from the CEO and positive guidance for the next year, investors remain doubtful. You can see the negative sentiment from the downward spiral of the stock.

FIRE is the pot stock to watch, but it’s not worth investing today. You’ll never know if the brands and products 7ACRES, Blissco Cannabis and Truverra could make a huge impact abroad.

“No buy” recommendations

Village Farms made it to the list of the 30 top-performing TSX stocks along with three other pot stocks. The basis for its inclusion was the dividend-adjusted share price appreciation. The stock rose to as high as $18.55 in mid-May but is down 34.55% as of this writing.

The way Supreme Cannabis is losing steam is a red flag. Its subsidiary, Blissco, was given the oils sales license by Health Canada last week. Supreme would turn Blissco into a solely oils production facility. If nothing spectacular comes out of the several initiatives, Supreme might not be able to regain lost ground.

Avoid pot stocks and the cannabis sector for now. It’s a losing proposition.

More reading

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool owns shares of Village Farms International, Inc.

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