As the U.S. gears up to inaugurate a new President, investors are busy cherry-picking stocks they believe may do well under Joe Biden’s administration. One industry that is garnering much attention currently is Cannabis.

The market is very optimistic about the potential legalization of recreational marijuana across various states and perhaps at the federal level too. The COVID-19 pandemic has also proved to be a catalyst for the cannabis industry: With limited means of entertainment and with peoples’ health and economic anxiety at high levels, both medical and adult-use marijuana have been much in demand.

The cannabis sector is facing consolidation and, separately, companies are working to modify their products to make them more appealing to consumers. Many pot companies are also venturing into new segments. One of the biggest events to watch is the upcoming merger between Aphria (APHA - Get Rating) and Tilray (TLRY - Get Rating). Upbeat results and optimism over the merger helped these stocks rally lately. HEXO Corp. (HEXO - Get Rating), too, has been soaring on the back of a new product launch and other fundamental factors.

Hence, we think it is worthwhile to add APHA, TLRY, and HEXO to your watchlist.

Aphria Inc. (APHA - Get Rating)

APHA cultivates, processes, produces and commercializes medical marijuana in Canada and other countries. The company sells medical cannabis and adult-use and cannabis-derived products. Some of the leading brands under its umbrella are Solei, Good Supply, RIFF, Broken Coast brands, and P’tite Pof.

APHA aims to complete a $3.8 billion reverse merger with Tilray (TLRY - Get Rating) to form the world’s largest cannabis company in the second quarter of 2021. APHA will hold 62% of the acquired company, but the merged entity will operate under Tilray’s brand. The company also completed the acquisition of a brewing company, SweetWater, in the late second quarter. APHA anticipates combined pre-tax synergies of more than  C$100 million from its associations with TLRY and SweetWater.

During the second quarter ended November 30, 2020, APHA’s net revenue increased 33.1% to C$160.5 million. The company’s gross revenue for adult-use cannabis surged 149% to C$72.1 million. APHA’s loss per share expanded to C$0.42 from C$0.03 posted in the prior-year period. Excluding non-recurring items, the company posted EPS of C$1 compared to a loss per share of C$0.19 posted in the second quarter of 2019.

The Street estimates revenue for the quarter ended February 28, 2021, to be $141.3 billion, representing a 28.8% increase year-over-year. Meanwhile, APHA is likely to break-even in the quarter ending May 2021.

APHA has rallied 142.7% in the past year to close Friday’s trading session at $12.42. The stock climbed 157.1% during the past six months.

How does APHA stack up for the POWR Ratings?

A for Trade Grade

B for Buy & Hold Grade

A for Peer Grade

A for Industry Rank

B for Overall POWR Rating

The stock is also ranked #52 of 239 stocks in the Medical – Pharmaceuticals Industry.

Tilray, Inc. – Class 2 (TLRY - Get Rating)

TLRY is one of the world’s leading cultivators and sellers of medical cannabis. Besides Canada and the United States, the company has operations in the U.K. Argentina, Australia, Germany, Israel, Switzerland, and Chile. TLRY also offers its products for research to physicians, pharmacies, governments, and hospitals in the clinical and commercial sectors.

During the third quarter ended September 30, 2020, TLRY’s revenue rose 0.6% to $51.4 million compared to the prior-year period. Its cannabis segment revenue declined 11% year-over-year to $31.4 million due to the suspension of bulk sales and a mild drop in Canadian Medical sales. TLRY’s total cannabis kilogram equivalents sold decreased 53% from the prior-year period to 5,107 kgs. However, the net loss per share shrunk to $0.02 from $0.37 in the same period last year.

The company has yet to lower its operating costs and achieve break-even. Also, investors are keeping an eye on developments post its mega-merger with Aphria Inc. (APHA) this year. The new company must focus hard on cost savings to get to profitability. Through this merger, APHA and TLRY aim to become the world’s biggest cannabis company by sales and to compete in the United States cannabis market. However, whether it will succeed depends on how well both the companies leverage their synergies.

Analysts expect revenue for the quarter ended December 31, 2020, to rise 18.8% year-over-year to $55.8 million. Its loss per share for the quarter is likely to expand to $0.15.

TLRY ended Friday’s trading session at $19.70, declining 12.5% over the past year. During the past six months, the stock surged 145.2%.

TLRY is rated “Buy” with an “A” for Trade Grade and Industry Rank, and a “B” for Buy & Hold Grade, and Peer Grade. It is currently ranked #55 of 239 stocks in the Medical – Pharmaceuticals industry.

HEXO Corp (HEXO - Get Rating)

HEXO cultivates and commercializes cannabis and cannabis-related products in Canada.  The company sells its adult-use and medical products under the brand name HEXO. Its other products include Elixir-a cannabis oil sublingual mist product line, dried cannabis under the brand Time of Day and H2 lines, and Decarb–an activated fine-milled cannabis powder product. HEXO also sells cannabis beverages under the brands Little Victory, Mollo, and the House of Terpenes.

Truss CBD USA, a joint venture by HEXO and Molson Coors Beverage (TAP) have launched Veryvell^TM, a brand new non-alcoholic, sparkling CBD beverage, available exclusively in Colorado.

During the three months ended October 31, 2020, HEXO’s total revenue surged 103.2% year-over-year to C$29.5 million. Its sales momentum rose across Canada, with 18% of the gross sales contributed by Alberta, 15% from Ontario and 6% from British Columbia. Its  adjusted EBITDA loss improved to $0.42 million from $3.25 million posted in the previous quarter. Loss per share $0.01 narrowed to $0.23 posted in the same period last year.

The consensus revenue estimate for the quarter ending January 31, 2021 is $25.3 million, representing  a 96.2% year-over-year increase. Loss per share is expected to decline to $0.06 during the period.

HEXO ended Friday’s trading session at $7.21, surging 12.1% over the past year. Over the past six months, the stock surged 145.2%.

HEXO’s POWR Ratings reflect this promising outlook. It has an overall rating of “Buy” with an “A” for Trade Grade, and a “B” in Buy & Hold Grade, and Peer Grade.

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APHA shares were trading at $12.62 per share on Tuesday afternoon, up $0.20 (+1.61%). Year-to-date, APHA has gained 82.37%, versus a 1.32% rise in the benchmark S&P 500 index during the same period.