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Canadian Cannabis Firms Battle Volatility, While U.S. Growers See Profitability

By Investing.com (Brenda O'Farrell/Investing.com)ETFsNov 26, 2019 05:54AM ET
www.investing.com/analysis/canadian-cannabis-firms-battle-volatility-while-us-growers-see-profitability-200487956
Canadian Cannabis Firms Battle Volatility, While U.S. Growers See Profitability
By Investing.com (Brenda O'Farrell/Investing.com)   |  Nov 26, 2019 05:54AM ET
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It could be the fact that the calendar year is winding down. Or, it might be the recent volatile seesawing of share prices in the cannabis sector that has market watchers wondering out loud about the future of pot stocks. In the wild world of weed, however, there are more questions than answers.

In the last two weeks, share prices tanked virtually across the sector after earnings results from some of the biggest companies hit one disappointing note after the other, creating a crescendo of discouragement among investors still hopeful about the industry’s long-term viability. Then, beginning in the middle of last week, the market came back, with many companies seeing stocks make double-digit rebounds.

Canopy Growth Corp (NYSE:CGC), (TSX:WEED), Aurora Cannabis Inc (NYSE:ACB), (TSX:ACB) and Aphria Inc (NYSE:APHA), (TSX:APHA) sent out the first blimps on the charts, claiming the title of the top three performers on the Toronto Stock Exchange at the close last Wednesday. Canopy was up more than 16% on the day, Aurora gained 12.5% and Aphria added just over 5.5%.

Canopy, Aurora, Aphria Weekly Price Charts
Canopy, Aurora, Aphria Weekly Price Charts

By Thursday, Hexo Corp (NYSE:HEXO), (TSX:HEXO) had joined the ranks of the rebounders, marking an impressive gain of more than 35% on the day, followed by Aurora and Canopy adding another 19% and 16%, respectively, to their previous day’s upward swings.

But by the time Friday rolled around, the swings were going in the opposite direction. Hexo dropped more than 15.5% on the day, Aurora lost 13% and Canopy shaved just over 9% from the previous close.

Volatility Based On Headlines

This recent volatility can be attributed to reaction to headlines, which explains their short impact span. In the U.S., news of the House of Representatives’ Judiciary committee approving a bill that would legalize marijuana at the federal level was largely responsible for the uptick in stock prices.

This coincided with the provincial government in Ontario announcing it would revamp how retail pot licences are handed out. But neither piece of news comes with immediate change. There is still no clear timeline for federal legalization in the U.S. and regulatory changes for retail outlets in Canada’s most populous province will not be effectively realized until the latter half of 2020.

The gains were paired back once reality carved a dent in the optimism. Canopy closed up 0.22% in New York yesterday to finish at US$18.45, while having gained 0.12% on the Toronto Stock Exchange to end the day at C$24.50. Aurora lost more than 6% yesterday to finish at US$2.52 (C$3.35), Aphria lost 2.36% Monday to end the day at US$4.56 in New York and was down 1.45% on the TSX closing at C$6.10, while Hexo ended up just under 2% at US$2.19 in New York and up 2.8% in Toronto at C$2.93.

Two U.S. Marijuana Companies Post Profitable Quarters

As Canadian-based cannabis companies deal with the ongoing ups and downs, U.S.-based companies are showing that profitability is not as elusive south of the border.

Making that case last week was Florida-headquartered Trulieve Cannabis Corp (OTC:TCNNF) and Massachusetts-based Curaleaf Holdings Inc (OTC:CURLF). Both reported better than expected quarterly results.

Trulieve, a medical cannabis grower with a market cap of US$1.32 billion, aims to operate 44 stores in Florida by the end of next month. It reported third-quarter revenues of US$70.7 million, above the anticipated figure of US$65.6 million. Revenues were up 22% compared with the previous quarter. The company also reiterated its 2019 guidance of US$220 million and projected US$220-240 million.

Trulieve stock closed yesterday at US$11.99 (C$15.88). It is up 9.94% in the past year.

Trulieve, Curaleaf Weekly Price Charts
Trulieve, Curaleaf Weekly Price Charts

Over at Curaleaf, growth in sales powered the multi-state operator to post a 27% increase in total revenues. Adjusted EBITDA was US$9 million, compared to a loss of US$3.2 million in the corresponding quarter last year. Curaleaf has a footprint in 12 states, operates 50 dispensaries and operates 14 cultivation sites and 13 processing centres.

Shares of Curaleaf closed Monday at US$5.98 (C$7.96), down more than 2.75% on the day.

Canopy Growth Beverages Production Starts

Canopy Growth began producing cannabis-infused beverages yesterday. The announcement came after the company obtained its operating and secure storage licence from Health Canada for a 150,000-square-foot facility at its headquarters in Smith Falls, Ont.

Canopy will be producing 11 drinks in what it is calling its “first wave” of production. Additional beverages will be rolled out in the coming months. The new products are expected to be shipped across Canada within weeks.

Last Friday, shares of Canopy fell almost 10% after Constellation (NYSE:STZ) revealed in a regulatory filing that it does not plan to make any additional cash injections into the weed company. According to the filing, the beer maker said Canopy is adequately capitalized with just over C$2.7 billion ($2.03 billion) in cash and marketable securities as of Sept. 30.

In August 2018, the brewer, which markets brands that include Corona, invested US$4 billion (C$5 billion) in Canopy, taking a 38% stake in the company. In June of this year, it made its displeasure in the marijuana grower's performance public. Within days, Canopy’s founder and CEO, Bruce Linton, was ousted.

Canadian Cannabis Firms Battle Volatility, While U.S. Growers See Profitability
 

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Canadian Cannabis Firms Battle Volatility, While U.S. Growers See Profitability

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Pwr Strk
Pwr Strk Nov 26, 2019 9:42AM ET
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misleading, USA firms are also struggling
 
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