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The cannabis collapse: Why weed stocks are crashing again
Tim KiladzePublished September 15, 2021
What started as a spectacular year for the cannabis industry has come crashing down.
Tara Walton/The Canadian Press
All the dreams of a sustained cannabis comeback are quickly getting dashed, and the sell-off is so sharp that the sector’s hardcore supporters have to wonder whether the endless roller coaster is worth it.
What started as a spectacular year for the industry, with the Horizons Marijuana Life Sciences Index
surging 140 per cent by early February, has come crashing down. The index is now back to where it started the year, and many of the sector’s stalwarts are faring much worse.
Canopy Growth Corp.
has cratered, falling 41 per cent this year, despite the support of wine and spirits giant Constellation Brands Inc., and the combination of Aphria Inc. and Tilray Inc. has done little to support the share price of the merged company.
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Some of the pain can be attributed to market dynamics. Growth stocks caught fire at the start of the year, and cannabis stocks were lumped in, helping to salvage some of their credibility after a disastrous 2020. Fast-forward seven months and many growth stocks have since sold off, as seen in the trading activity of the once-almighty Ark Innovation ETF, which is now down 6 per cent for the year.
Overzealous investor expectations are also playing a significant role again, and hopes of federal legalization in the United States are dissipating, leaving investors staring at many more quarters of red ink. Although Democrats have proposed legislation for cannabis reform now that Joe Biden is in the White House, the meticulous plans they have tabled are likely to get bogged down in the legislative process.
“We believe the comprehensiveness of the draft plan will likely need to see substantial revisions in order to garner enough support to ultimately be implemented into law, which took most of the air out of what was anticipated to be a material catalyst for the sector,” Canaccord Genuity analysts Matt Bottomley and Derek Dley wrote in a recent report for clients.
There are also fears that the Democrats could lose control of the U.S. House of Representatives or the Senate in 2022, which could make it even harder to pass the proposed legislation.
The U.S. itself is not a wasteland for cannabis companies. In fact, some of the American multistate operators – which actually operate within individual states but do not let their operations cross state lines because of the federal rules – are seeing encouraging sales growth. Trulieve Cannabis Corp., which trades on the Canadian Securities Exchange but predominately operates in Florida, is one of the sector’s profitable companies, making it a rarity.
Because so many multistate operators already exist, it will be tough for Canadian-bred companies to compete even if the federal rules eventually change. Given this reality, the domestic operations of these companies carry more weight when investors assess their prospects – and the situation in Canada isn’t pretty.
“We believe the ability to maintain/grow market share in Canada will likely become increasingly difficult … given the saturation of market participants, infrastructure and inventory levels that continue to weigh on virtually all Canadian operators in the space,” Canaccord’s analysts wrote to clients.
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The situation is so fraught that CIBC World Markets analyst John Zamparo recently said the once-venerable Canopy and Aurora Cannabis
are likely to bleed red ink for another year, even though both companies have booted their old management teams and spent multiple years cleaning up the old guard’s messes. “We continue to expect at least 12 months until either achieves positive earnings before interest, taxes, depreciation and amortization,” Mr. Zamparo wrote in a recent note to clients.
Because so many Canadian producers are struggling in an oversaturated market, Tilray chief executive Irwin Simon speculated last week that the industry could see some consolidation. “Canadian cannabis stocks have got pretty cheap lately. There’s a point it may make sense to do some other acquisitions out there and buy companies to get share, instead of spending a lot more money going out there and getting share by building awareness with the consumers,” he told an investor conference.
If history is any guide, it may not be enough. Cannabis companies have been merging for years, dating back to Aurora’s 2018 deals for CanniMed Therapeutics Inc. and MedReleaf Corp., and nothing’s changed yet.
director just sold millions of shares
i was.. right now i wish i had lots of funds available
lol, telling HD to load up on shares.. he literally has a least over 1% of all shares.
A lot of the negative stuff in the report, equipment, changing product line. Also other stuff like the buying and selling of from a 3rd party…. this stuff should have been reported in the monthly reports. They wrote, “not applicable” in the sections in my opinion would be relevant.
The cookies agreement is about the new facility. It’s not built yet. wouldn’t expect to hear anything.
It has also been agreed that contingent upon the completion of Next Green Wave’s new cultivation facility, expected in Q4 2021 (see press release HERE), a portion of the new production will be allocated to the COOKIES brand.
In June 2021, the Company commenced construction on its 62,000 sq.ft. premium indoor cultivation facility (“Facility B”). In August 2021, the Company was awarded its building permit, for Facility B, by the City of Coalinga.
I’m not close to the action (physical) by a long shot. I do read the city’s minutes tho looking for updates that may apply to the company. Latest minutes show city is considering changing how they tax growers: https://coalinga.novusagenda.com/AgendaPublic/CoverSheet.aspx?ItemID=4071&MeetingID=387
the address for the building under development is 1921 Mercantile Lane. It’s different from the green haven farms.
i think that is a different company, different location, smaller building. I’ve seen lots is permits for different cannabis companies in that area.
Clone, thoughts on NGW getting their provisional licence renewed which you warned us all would not happen? What went wrong with your information there? Did you have bad information or was this poor speculation and judgment on your part?
the upgrade from provisional licence is an annual licence which i assume also has to be renewed yearly.
actually a provisional one cannot be renewed (ngw is because of the logjam cal created)
The provisional cannabis license is said to be in between a temporary license and an annual license and allows a cannabis business to operate as they would under local and state regulations. The license is valid 12 months from the date issued and it cannot be renewed upon expiration.Feb
so much post earnings sale i was promised :(
Canadian Dollar is Doing good so that might put the canadian stock on a bigger sale?! Speaking of currency exchange has anyone heard from chuck?
Great Sale but no inventory!
The same! I’m thinking i like my 4 digit returns… i prefer them to the single or barley double.. 950%!!
NGW @ 5 minute mark
If you can’t handle those “risks” sell at .10. If you can handle them, stay long. Risks management.
Imagine What they will look like in 2023
In 2021, the Company will:
- Construct a 50,000 square foot facility (“Facility B”), which is immediately adjacent to Facility A to accommodate the expansion of the nursery, flower manufacturing and distribution operations.
- Evaluate plans to develop the eleven acres of land on Lot D (“Facility D”), which is adjacent to Facility B
nah, keep the price low so i can buy more, then in 3-5 years the price should take care of its self
Personally I’m in this for 5 - 10 years. The only think that could make me loose sleep is if they stop preforming or something stops them from building up their long term plans. If it goes don’t to .50 that excites me!
I’m tempted to add another 15k in my tfsa.
According to Bloomberg:
Earnings Announcement for Period Ending Q4/2020:04/30/2021
https://www.bloomberg.com/quote/NGW:CN
warrants?