Cannabis is getting huge acceptance as more and more states legalize with Canada set to follow suit. Here are three of the most promising cannabis companies, from a financial perspective.

The “canopy growth stock forecast” is a company that is involved in the cannabis industry, and they have been glowing green for a while. Aurora Cannabis, Tilray, and Canopy Growth are all considered to be great investments right now.

Why Tilray, Aurora Cannabis, and Canopy Growth Are Glowing Green

Why-Tilray-Aurora-Cannabis-and-Canopy-Growth-Are-Glowing-Green

 

Wells Fargo just yelled “sell!” to investors, but they instead purchased cannabis stocks.

What took place?

Today, something weird occurred in the cannabis industry. Analysts at investment bank Wells Fargo launched covering in the marijuana market, warning of overvaluation and advising investors to focus their attention on hydroponics providers instead — yet marijuana stocks soared regardless.  

Tilray ( TLRY -6.97 percent ) is up 4.6 percent as of 12:35 p.m. ET, while Aurora Cannabis ( ACB -4.41 percent ) and Canopy Growth ( CGC -6.76 percent ) are both up 7.1 percent.

So what

The final firm on the list, Canopy Growth, is the target of Wells Fargo’s wrath this morning. Without government action to legalize marijuana sales in the United States, Canopy Growth is unlikely to reach break-even earnings anytime soon, according to the analyst. Investors seem to be misinterpreting Wells Fargo’s warning today, mistaking it for a guarantee that if cannabis is legalized, Canopy (and its colleagues) would become profitable overnight.

Even if legalization occurs soon, it’s unclear when Canopy Growth will turn a profit, prompting the analyst to conclude that “weakness [in Canopy Growth’s stock price] is [not] a buying opportunity.” Wells, on the other hand, believes that investors should sell the shares, predicting a 42 percent drop in the stock price (to an 8 Canadian dollar target price).    

Granted, a poor opinion of Canopy Growth does not always entail a negative assessment of Aurora Cannabis and Tilray. However, Canopy was “earning” a negative operating profit margin of 107 percent on its sales at the time of the latest report. Tilray isn’t profitable (negative 19 percent operating margin), while Aurora’s margins are far worse (negative 119 percent).

Now what

To put it another way, these aren’t terrific figures, and although a jump in marijuana sales from Washington, D.C. legalization would help, Aurora’s sales have already increased 13 times in the previous five years, according to S&P Global Market Intelligence data. Tilray’s sales have increased by almost 37 times, while Canopy Growth’s have increased by 15 times. It’s difficult to estimate how much more growth would be required to bring this sector into profitability if that amount of sales growth hasn’t been adequate.

It’s possible that this is why Wells Fargo advises marijuana investors to avoid the big cannabis companies entirely and instead invest in suppliers like Scotts Miracle-Gro ( SMG -2.14 percent ), whose stock is up 7.9 percent today, on the theory that the “leader in lawn/garden and hydroponics… can take advantage of market dislocations… to consolidate more share” and grow its business. 

That argument, I must admit, makes a lot of sense. If increasing sales across the big marijuana companies is contributing to an excess supply of marijuana, depressing prices and preventing companies like Canopy Growth, Aurora Cannabis, and Tilray from profiting, it stands to reason that a company like Scotts, which sells the products required to grow those marijuana sales in the first place, must have a bright future ahead of it.  

It’s an ancient adage in California: don’t invest in gold miners. Rather, put your money into the people that offer them tools and shovels.

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Tilray and Aurora Cannabis are two companies that have been growing rapidly. Tilray’s stock price has increased after their merger, while Canopy Growth’s stock price has gone down. Reference: will tilray stock go up after merger.

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