Welcome to our Weekly Cannabis Report, a reliable source for investors to receive the latest developments and analysis in the cannabis sector.
Cannabis stocks are heading towards correction territory after weak performances across the board last week. The Horizons Marijuana Life Sciences Index ETF (OTC:HMLSF) slumped 6.8% and the ETFMG Alternative Harvest ETF (MJ) dropped 7.4%. U.S.-focused Horizons U.S. Marijuana Index ETF extended its abysmal performance with another 7.5% drop.
Canadian Large-Cap: The largest cannabis companies cratered last week with Tilray (TLRY) again leading the way down with a 13% drop. Tilray has dropped 46% this year so far. Canopy (CGC) dropped 9% despite Acreage receiving support from 91% of its shareholders for the deal.
Canadian Mid-Cap: Aphria (APHA) dropped 10% to reverse its recent gains from positive initiating coverage by the Jefferies. OrganiGram (OGI) dropped 3% after receiving its organic certification for recreational products.
Canadian Small-Cap: MediPharm (OTCQB:MEDIF) crashed 17% after the company launched an equity raise at C$5.55 per share. WeedMD (otcpk:WDDMF) was the bright spot after gaining 9% on the back of receiving its outdoor growing license.
(Source: Author, based on public data)
U.S. Large-Cap: U.S. cannabis stocks began reporting 2019 Q1 earnings. MedMen (OTCQB:MMNFF), Green Thumb (otcqx:GTBIF), Cresco Labs (OTCQX:CRLBF), and iAnthus (OTCQX:ITHUF) rose after their earnings. On the other hand, Curaleaf (OTCPK:CURLF) and Harvest Health (OTCQX:HRVSF) dropped after earnings despite reasons that are unclear to us. Charlotte's Web (OTCQX:CWBHF) slumped another 8% after recent equity deal.
U.S. Small-Cap and International: TILT Holdings (OTCQB:SVVTF) reported results but investors were spooked by its $60 million stock options issued to executives. Khiron (OTCQB:KHRNF) slumped 19% for reasons unclear but it is likely just a reversal of its strong performance. Sunniva (OTCQB:SNNVF) was little changed after reporting Q1 and moving its headquarter to California.
(Source: Author, based on public data)
- The U.S. FDA held its first hearing with industry participants to investigate the effectiveness of CBD products
- OrganiGram received organic certification for its recreational cannabis production in addition to its organic medical cannabis offerings
- The Alberta province lifted its previous halt on retail cannabis licensing due to improving supply conditions; 5 new licenses will be issued weekly
- WeedMD became another Canadian producer licensed to begin outdoor cannabis growing with its 27 acres site in Ontario
- Trulieve reported 2019 Q1 results with revenue growing 24% to $44 million and EBITDA increasing 25% to $19 million
- Origin House reported 2019 Q1 revenue of C$11 million while it is being acquired by Cresco Labs
- Green Thumb reported 2019 Q1 results with revenue of $28 million and EBITDA remains negative for the quarter
- Acreage announced that 91% of its shareholders said they will approve its proposed acquisition by Canopy Growth
- MedMen reported calendar 2019 Q1 results including revenue of $37 million and EBITDA was a negative $43 million
- Sunniva reported calendar 2019 Q1 revenue of C$14 million
- Harvest Health reported 2019 Q1 results including revenue of $19 million and $51 million pro forma for pending acquisitions
- Cresco Labs reported 2019 Q1 results including revenue of $21 million and EBITDA was a positive $0.8 million
- Curaleaf reported 2019 Q1 revenue of $35 million
- iAnthus reported 2019 Q1 results including revenue of $9.6 million
- MediPharm launched a bought deal to sell shares at C$5.55 per share
- Charlotte's Web delisted from the CSE to move to the TSX
It has been a brutal month for pot stocks and the broader equities market. Thanks to the trade war started by the U.S. against China, the global markets suffered one of its worst months in recent decades and pot stocks were hit particularly hard. Due to the risky nature of cannabis stocks, we think investors are inclined to cut them during risk-off periods. As a result, we think investors should position themselves appropriately with the understanding that the current trade war might last into the next decade. We don't think there will be a quick fix to the current trade spat between the two superpowers and global stocks could continue to suffer in the months or years to come.
We believe the current risk/reward profile of pot cannabis is tilted to the downside. The global economy is subject to significant risks from the trade war and investor sentiment is fragile at best. Pot stocks began 2019 with a huge rally that lasted through Q1 but momentum has dissipated in recent months. In a cyclical sector like cannabis, we think momentum is important for investors to recognize in order to adjust their positions accordingly. We think it would be prudent to reduce exposure to pot stocks at this juncture before stability returns to financial markets.
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.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.