Welcome to our Weekly Cannabis Report, a reliable source for investors to receive the latest developments and analysis in the cannabis sector.
Cannabis stocks experienced a volatile week, in line with the broader stock market. The Horizons Marijuana Life Sciences Index ETF (OTC:HMLSF) lost 1.1% and the ETFMG Alternative Harvest ETF (MJ) dropped 1.4% last week.
Canadian Large-Cap: Canopy Growth Corp. (CGC) dropped 3.3% after announcing a small hemp acquisition in the U.S. Aurora Cannabis (ACB) declined 6.0% after a big run the prior week. Tilray Inc. (TLRY) dropped 7.4% after reporting a disappointing quarter with big losses. Cronos Group (CRON) lost 8.4% as investors and analysts fret over its elevated valuation. Aphria (APHA) was flat without major news.
Canadian Mid-Cap: HEXO Corp. (HEXO) rose 5% in the aftermath of its Newstrike acquisition and strong quarter. CannTrust Holdings (CTST) was up another 8.6%, and the company will report earnings this week on Thursday. The Green Organic Dutchman Holdings ("TGOD") (OTCQX:TGODF) gained 4.6% after reporting its first-ever revenue from Poland. OrganiGram Holdings (OGRMF) rose 2.0% without major news.
Canadian Small-Cap: Auxly (OTCQX:CBWTF) was the outperformer last week after the stock jumped 23.8% without any obvious catalyst. High-flyer Village Farms International (VFF) rose another 12.5%, bringing its YTD gains to almost 400%. Harvest One Cannabis (OTCPK:HRVOF) was another outlier with its 33% gain after the company began shipping cannabis to Shoppers Drug Mart.
(Source: Author, based on public data)
U.S. Multistate Operators: MSOs had one of its best weeks as key players reported impressive financial results. Curaleaf Holdings (OTCPK:CURLF) jumped a whopping 51.2% after announcing impressive Q4 results and a deal with CVS Health (CVS) to supply CBD products to its 800 stores initially. MedMen Enterprises (OTCQB:MMNFF) announced up to US$250 million in new financing from Gotham Green Partners to fund its future growth. Acreage Holdings (OTC:ACRZF) continued its rally with another 15.1% jump after a strong quarter.
Ancillary and International: CBD stocks rallied last week after CVS Health began selling CBD products in select stores nationally, which benefited Charlotte's Web Holdings (OTCQX:CWBHF), CV Sciences (OTCQB:CVSI) and Elixinol Global (OTCQX:ELLXF). Latin American cannabis player Khiron Life Sciences Corp. (OTCQB:KHRNF) gained 6.5%. Cannabis supplier KushCo Holdings (OTCQB:KSHB) was flat without news. Cannabis REIT Innovative Industrial Properties (IIPR) rose another 9.3% after its recent strong Q4 results and a 29% dividend hike.
(Source: Author, based on public data)
- Horizons disclosed that it is looking to set up an ETF that holds only U.S. cannabis stocks, which would be a great product, in our view, given the positive momentum in the American cannabis market.
- Canopy acquired AgriNextUSA to boost its U.S. hemp portfolio.
- MedMen received an investment of up to US$250 million from Gotham Green Partners to fund its near-term growth, including Florida.
- Curaleaf announced impressive 2018 Q4 results and disclosed its deal to supply its own branded CBD products to 800 CVS stores initially.
- Supreme Cannabis (OTCQX:SPRWF) received additional licenses from Health Canada and aims to reach 50,000 kg of annual capacity by mid-2019.
- TGOD announced its first-ever quarterly revenue of C$1.9 million, all of which came from its acquired hemp company in Poland; the company remains revenue-less from its Canadian operation.
- Tilray reported its 2018 Q4 results including revenue of US$15 million, which grew 55% from last quarter.
Last week, we saw the cannabis market going through a dramatic reversal on Friday along with the broader equities market, once again demonstrating its status as a risky asset. After a strong first four days of trading buoyed by strong earnings from U.S. MSOs and the CVS deal with several CBD producers, the sector took a nosedive on Friday as HMMJ lost 3.4% and MJ crashed down 4.2% by the time market closed. Much of Friday's losses could be attributed to the broader markets, as S&P tumbled 1.9% and Nasdaq lost 2.5% due to investor concerns on the weak European economic data.
For cannabis investors, we think it is utterly important to realize that the sector remains a risky asset, thus it will be subject to higher volatility despite the promising long-term trajectory. The sector has performed extremely well during the first quarter of 2019 as the global economy stabilized and stock markets recovered; however, we expect the sector to also exhibit higher downside risks when the stock market experiences volatility. We have seen two full-blown month-long selloffs in the last year alone, each accompanied by a strong recovery in the following months. As we have also pointed out in the past, the cannabis sector trades in cycles and investors could significantly enhance their returns by recognizing the general trends in the sector. While no one could time the market perfectly, it is possible to observe broader trends and opportunistically change portfolio positions to capitalize on market volatility.
In today's market, we think risks are high for cannabis stocks, as 2019 could not have been better for cannabis investors. However, the increasing anxiety among investors on the global economic growth outlook and the ongoing trade war between China and the U.S. will continue to serve as overhangs on the global market. We have seen how the cannabis market could be impacted disproportionately by the broader market during the selloff at the end of 2018, and we think investors should remain vigilant and responsive to such risks.
On the other hand, we think last week was a historic moment for the U.S. CBD industry, as CVS began selling CBD products in select stores across the U.S. Curaleaf was the only company to officially announce a deal with CVS to supply an initial list of 800 stores with its own branded products. Furthermore, consumers have posted photos on the internet showing products from Charlotte's Web and two other brands on the shelves at select CVS stores. As we noted in a recent article, we think the biggest catalyst for CBD stocks will be gaining access to national distributors like CVS. We remain highly confident in the long-term outlook of the CBD industry, and last week was yet another validation of the long-term potential of this nascent industry.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.