3 Risky Stocks That Are Cash-Burning Machines

Investors should be wary when it comes to cash-burning companies. These are businesses that aren’t generating positive cash flow from their day-to-day operations. Not only does that mean their operations aren’t sustainable, but it might mean their future survival depends on new sources of funding. That includes new share offerings, which dilute investors and send stock prices crashing.

Three cash-burning stocks that are particularly concerning are Canopy Growth (NASDAQ: CGC), Plug Power (NASDAQ: PLUG), and SoundHound AI (NASDAQ: SOUN).

Canopy Growth

Canadian cannabis producer Canopy Growth has made a lot of changes over the years to slim down its business and cut costs, but it has failed to result in a sustainable, cash-generating operation. Cannabis companies often like to show progress in terms of adjusted earnings numbers. But oftentimes, those calculations can be complex and make it difficult to determine whether the company really did well.

One metric that doesn’t lie is operating cash flow, the cash a company generates from its normal operations. This is what cannabis investors should focus on. And in its most recent fiscal year, which ended on March 31, Canopy Growth reported an outflow of cash from its day-to-day continuing operations totaling 228.4 million Canadian dollars. While it is an improvement from a year ago, when the cash burn totaled CA$394.4 million, this is a company that’s still in deep trouble from a financial point of view. It had just CA$170.3 million in cash and cash equivalents as of the end of the quarter, and so it’s no surprise the company announced an offering in June for $250 million, roughly a third of its market cap at recent prices.

While Canopy Growth will desperately try to convince investors of its amazing growth opportunities in the U.S. market (which remains off-limits until the U.S. actually legalizes pot), investors shouldn’t bother with this stock until it shows significantly more improvements in its cash flow. This is a stock that faces a very risky and uncertain future.