Analysts Warns Traders to Be Wary of Cannabis Stocks Due to Low Profit Margins

Asia Plus Securities cautions investors about investing in cannabis-hemp related stocks as they’ve already rallied and absorbed the hemp trend.

Stock prices for cannabis and hemp firms have skyrocketed since legalization of cannabis took effect in Thailand on June 9, exceeding the market’s consensus. 

ASPS stated that, based on the cannabis trend in the United States over the past two years, major U.S. hemp players have experienced revenue growth but faced losses. Only Trulieve Cannabis Corp is expected to generate a profit in 2022, however the P/E ratio is quite high at 136x. In the past two years, the price of these companies rose due to speculation on hemp stocks, despite the fact that earnings were weak. They are sold for profit-taking this year, and their value has already declined by 30% in early 2022.

Therefore, the analyst urges investors to invest with caution in cannabis and hemp equities, as these businesses are just beginning. Some firms (e.g. RBF, DOD, RS, and SAPPE) are making headway in hemp-cannabis cultivation, extraction, and production despite having a profit base of less than THB500 million; these stocks may climb with the trend. Meanwhile, some businesses are experiencing losses (e.g. SPA, FN, BEAUTY, BC).

Hemp businesses do not make much profit to offset loss in the short term, while these stocks already rallied and absorbed the hemp trend.