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What are we looking for?

Cannabis stocks with the financial strength to survive COVID-19 and thrive anew.

The screen

The outlook for top cannabis growers, processors and retailers is appealing. Meanwhile, for most others, the task of securing near-term funding to keep their money-losing operations going may prove insurmountable. Yet, raising money through an equity offering at today’s low prices would be highly dilutive to their current investors.

That’s why the best marijuana picks for investors right now have rising sales to sustain growth for some time, but also cash on hand and manageable debt. Well-heeled partners are a big added plus.

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Our search targeted stocks with those characteristics and poised to benefit from expanding cannabis demand. We then applied our Cannabis Quality Ratings.

The results zero in on stocks with the highest investment quality for aggressive investors seeking cannabis exposure. Note: We recommend conservative investors avoid cannabis stocks altogether.

Our Cannabis Quality Rating System awards points to a stock based on key factors:

  • Rising and diversified revenue;
  • Cost-competitive production;
  • Sound balance sheet;
  • International operations;
  • Industry prominence;
  • Free from dependence on a single customer;
  • Prominent clients or partnerships;
  • Market capitalization in line with sales;
  • A focus on organic growth, not acquisitions;
  • Stock gains in line with market averages;
  • Operates without the added pressure and expectations of being a media darling.

Our Cannabis Quality Ratings, or CQR, range from a 5-Leaf score for sound investment quality and reasonable valuations down to 1-Leaf for little investment quality and high overvaluation.

More about TSI Network

TSI Network is the online home of The Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor. The TSI Cannabis Investing Bulletins is the latest. TSI Network is also affiliated with Successful Investor Wealth Management.

What we found

Our CQR system generated five stocks, none of which pay a dividend. Canadian leader Canopy Growth Corp. has a deep-pocketed partner in U.S. beverage giant Constellation Brands Inc. It also holds cash of roughly $2.3-billion. Cronos Group Inc. has tobacco heavyweight Altria Group Inc. in its corner – plus $1.5-billion in cash.

Vivo Cannabis Inc. grows premium marijuana at greenhouses in Ontario and British Columbia, while Valens GroWorks Corp. in B.C. extracts cannabis oils for many large marijuana and hemp growers. Both have sound balance sheets. And finally, Fire & Flower Holdings Corp. is a licensed cannabis and accessories retailer with stores in a number of provinces. Convenience-store leader Alimentation Couche-Tard Inc. made a big investment in that company last year and has an option to take a majority stake.

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Five Canadian cannabis stocks that might survive COVID-19

Ranking*CompanyTickerMkt. Cap. ($ Mil.)Cannabis Quality Rating1Y Ttl. Rtn. (%)Recent Price ($)
1Canopy Growth Corp.WEED-T8,192.203.5-66.223.64
2Cronos Group Inc.CRON-T3,038.403.5-62.38.63
3Valens GroWorks Corp.VLNS-T298.803-47.92.43
4Vivo Cannabis Inc.VIVO-T71.002.5-70.80.26
5Fire & Flower HoldingsFAF-T101.902.5-50.80.64

Source: Dividend Advisor.

*Ranking is determined by TSI Cannabis Quality Rating Score. Where overall points are the same, analysts considered company valuation and outlook to decide final placements.

We advise investors to do additional research on investments we identify here.

Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

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