Cannabis stocks began inching their way back upward Friday after plunging Thursday in the Wall Street selloff. Four Canadian companies — Aphria Inc. (NASDAQ: APHA), Aurora Cannabis Inc. (NYSE: ACB), Cronos Group Inc. (NASDAQ: CRON) and Canopy Growth Corp. (NYSE: CGC) — all took hits to their share prices.

On Thursday, Aphria dropped 13.8% from the previous day’s close. (The company recently moved from the New York Stock Exchange to Nasdaq, saying it was a matter of keeping costs down.) Aurora Cannabis was down 9.7%, Cronos Group 15.4% and Canopy Growth about 1%.

At the same time, the S&P 500 tumbled nearly 6% and the Dow Jones industrial average lost nearly 7%. It was the worst day on Wall Street in three months.

A recovery appeared to be taking place early Friday, with Aphria up more than 4% and Aurora higher by about 4%. Cronos rose by nearly 2% and Canopy Growth more than 3%. However, there was some volatility in these stocks going into the afternoon.

The wider stock market followed a similar pattern. The S&P 500 was up more than 2% and the Dow Jones industrial average picked up nearly 3% before falling back then making another upward move.

Favorable View From Analysts

Aphria has been viewed favorably recently, with a consensus recommendation of Buy from analysts. The median price target is $8.21.

Investors may have taken Thursday’s drop as a buying opportunity for Aphria, based in Leamington, Ontario. The share price had risen more than 30% over the last month, although it is still down between 1% and 2% year to date.

The company reported strong earnings in the latest quarter, showing a profit on strong sales.

In April, Aphria reported net third-quarter revenue of $144.4 million Canadian dollars, an increase of 96% from the prior year quarter and an increase of 20% sequentially. The results were significantly better than the analysts predicted.

Plenty of Growth Potential

“Our growth has enabled us to be one of the few profitable, publicly traded distributors,” chief executive Irwin Simon said last month. EBITDA (earnings before interest, taxes, depreciation, and amortization) has also been positive for the last four quarters.

During the COVID-19 pandemic, cannabis companies have benefited from the designation of medical cannabis as “essential businesses” by 30 states.

There’s also potential for long-term growth as more states, such as New Jersey and New York, move toward legalizing recreational adult-use cannabis. That process has been thorny but lawmakers continue to work on it. Legalization of recreational marijuana by additional states, especially populous ones, is expected to put more pressure on the federal government to legalize cannabis across the country. That would potentially open up a multibillion-dollar market.

Another avenue for growth is competition with illegal pot sales. A recent report from the Ontario Cannabis Store, the only legal seller of recreational marijuana in Canada’s largest province, said that more than 80% of marijuana sales in the province are made through the black market.

Strong Balance Sheet

In its latest financial results, Aphria reported C$515 million in cash or cash equivalents for the third quarter of the fiscal year. That liquidity is just what the doctor ordered in a down economy, and the strong balance sheet sets Aphria apart in the publicly traded cannabis sector.

The company says it is committed to keeping costs down, noting its move on June 8 to the Nasdaq will save money.

“This move is a reflection of our ongoing commitment to find cost effective ways of operating so we can continue to deliver long-term value to shareholders,” Simon said.

It’s cheaper for companies to list on Nasdaq. The company’s primary listing is on the Toronto Stock Exchange.

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