Marijuana investors get a healthy dose of volatility as shares plunge
- Thread starter gb123
- Start date
Canadian cannabis stocks plunged Thursday to their lowest levels since December, and analysts covering the sector say investors should be ready for more volatility in the weeks to come.
The pain was widespread, with the Canadian Marijuana Index, which tracks 24 leading cannabis stocks, down more than 11 per cent at Thursday’s close.
Shares in Canopy Growth Corp. dropped below $30 for the first time since Dec 29, falling 11.19 per cent to $27.55, while other big-name producers Aurora Cannabis Inc. and Aphria Inc. fell 12.65 and 12.39 per cent respectively.
The steepest dive came from shares in Namaste Technologies Inc., a retailer of cannabis related products, which dropped 21.71 per cent.
‘OVERBOUGHT SECTOR’
“Institutional traders and hedge funds are selling all the names, and once you get one name going down, they’re not going to discriminate too much,” said Chris Damas, author of the BCMI Cannabis Report. “This is an overbought sector.”
The whole industry has been trending downwards for more than a week, and since Monday, the Canadian index has lost more than 20 per cent.
The pullback, however, is not causing too much concern among analysts, many of whom see the price drop as a return to reality.
“We’re closing in a round-trip from those levels in December, when things spiked for no fundamental reason, so there’s no fundamental reason I can point to for it to be undone,” said Russell Stanley, equity analyst with Echelon Wealth Partners.
“Even with all the red that we’re seeing on the screen today, the peer group that we look at is still trading at almost 17 times 2019 EBITDA (based on consensus estimates), so that’s still a very healthy growth multiple for the space,” he added.
FINANCING DEALS
One reason for the pullback may be the recent flood of financing deals, said Daniel Pearlstein, an analyst with Eight Capital. There were “a number of very large financings in the space over the last few weeks, and there was a lot of new capital issued that the markets have to churn through,” he said.
Supply of new stock, in other words, appears to be outstripping demand, explained Martin Landry, managing director of equity research with GMP Securities.
“There’s been more than $1 billion raised in January for cannabis producers … so it’s sucked a lot of demand. It is healthy, in a sense, to see a pullback, it brings back a new wave of investors for the next leg up,” Landry said.
There could be other factors contributing to Thursday’s drawdown. Aphria announced in a press release, shortly before noon, that it was “considering strategic alternatives with respect to its U.S. cannabis related interests, including the possible divestiture of its investments.”
Analysts were at odds as to how much this news was affecting the sector, with some suggesting it might be fuelling uncertainty about companies with U.S. exposure, and others noting that it should be seen as a positive measure from a risk perspective, at least for Aphria.
Some analysts pointed to another potential drag on prices: on Wednesday it was reported that a U.S. cannabis fund, ETFMG Alternative Harvest, which has raised more than US$350 million since launching in late December, is being reviewed by U.S. Bancorp, the custodian bank that holds the ETF’s assets. If Bancorp decides against continuing its relationship with Alternative Harvest, the fund could face closure.
“To some extent people attributed that spike we saw at the very end of December to the arrival of that fund, and the interest that it drove and the buying that it had to do in various cannabis names. I think now we’re seeing the fear that maybe if something happens to that fund we’re seeing that get undone,” said Stanley.
Whatever factors are causing the drop, stock prices may well continue to decline, at least in the short term. Jason Zandberg, analyst with PI Financial Corp., estimates we still have “10 to 15 per cent declines to go before the market settles.”
According to Landry, the next few days and weeks could be volatile. But, he added, “we have a lot of catalysts coming up in the next month when the provinces announce their suppliers. I think this is going to be perceived extremely positively, and I think that could be a nice catalyst to get most of these companies up again.
The pain was widespread, with the Canadian Marijuana Index, which tracks 24 leading cannabis stocks, down more than 11 per cent at Thursday’s close.
Shares in Canopy Growth Corp. dropped below $30 for the first time since Dec 29, falling 11.19 per cent to $27.55, while other big-name producers Aurora Cannabis Inc. and Aphria Inc. fell 12.65 and 12.39 per cent respectively.
The steepest dive came from shares in Namaste Technologies Inc., a retailer of cannabis related products, which dropped 21.71 per cent.
‘OVERBOUGHT SECTOR’
“Institutional traders and hedge funds are selling all the names, and once you get one name going down, they’re not going to discriminate too much,” said Chris Damas, author of the BCMI Cannabis Report. “This is an overbought sector.”
The whole industry has been trending downwards for more than a week, and since Monday, the Canadian index has lost more than 20 per cent.
The pullback, however, is not causing too much concern among analysts, many of whom see the price drop as a return to reality.
“We’re closing in a round-trip from those levels in December, when things spiked for no fundamental reason, so there’s no fundamental reason I can point to for it to be undone,” said Russell Stanley, equity analyst with Echelon Wealth Partners.
“Even with all the red that we’re seeing on the screen today, the peer group that we look at is still trading at almost 17 times 2019 EBITDA (based on consensus estimates), so that’s still a very healthy growth multiple for the space,” he added.
FINANCING DEALS
One reason for the pullback may be the recent flood of financing deals, said Daniel Pearlstein, an analyst with Eight Capital. There were “a number of very large financings in the space over the last few weeks, and there was a lot of new capital issued that the markets have to churn through,” he said.
Supply of new stock, in other words, appears to be outstripping demand, explained Martin Landry, managing director of equity research with GMP Securities.
“There’s been more than $1 billion raised in January for cannabis producers … so it’s sucked a lot of demand. It is healthy, in a sense, to see a pullback, it brings back a new wave of investors for the next leg up,” Landry said.
There could be other factors contributing to Thursday’s drawdown. Aphria announced in a press release, shortly before noon, that it was “considering strategic alternatives with respect to its U.S. cannabis related interests, including the possible divestiture of its investments.”
Analysts were at odds as to how much this news was affecting the sector, with some suggesting it might be fuelling uncertainty about companies with U.S. exposure, and others noting that it should be seen as a positive measure from a risk perspective, at least for Aphria.
Some analysts pointed to another potential drag on prices: on Wednesday it was reported that a U.S. cannabis fund, ETFMG Alternative Harvest, which has raised more than US$350 million since launching in late December, is being reviewed by U.S. Bancorp, the custodian bank that holds the ETF’s assets. If Bancorp decides against continuing its relationship with Alternative Harvest, the fund could face closure.
“To some extent people attributed that spike we saw at the very end of December to the arrival of that fund, and the interest that it drove and the buying that it had to do in various cannabis names. I think now we’re seeing the fear that maybe if something happens to that fund we’re seeing that get undone,” said Stanley.
Whatever factors are causing the drop, stock prices may well continue to decline, at least in the short term. Jason Zandberg, analyst with PI Financial Corp., estimates we still have “10 to 15 per cent declines to go before the market settles.”
According to Landry, the next few days and weeks could be volatile. But, he added, “we have a lot of catalysts coming up in the next month when the provinces announce their suppliers. I think this is going to be perceived extremely positively, and I think that could be a nice catalyst to get most of these companies up again.
VIANARCHRIS
Well-Known Member
POP!
VIANARCHRIS
Well-Known Member
Betcha they're lobbying government HARD to get the rec date moved up. The investors are about to cut and run.
Uncle Reefer
Well-Known Member
.. and you can buy pounds of good weed on the street for 600-900 per pound. it costs at least 740 to grow a pound of weed indoors and that is about as cheap as it gets. Any cheaper and you are not paying for space or not accounting for hours worked or not getting a return on investment aka lights and other gear. This is me paying just myself 20 per hour. No investor returns no ceo's, no accountants, no lawyers, none of that. Good luck with your business model. I don't see how any LP will make any money until they start using the RCMP as their personal army.
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740 to grow a pound indoors?
Not EVER in all my MANY MANY YEARS of growing!
P's are CHEAP AS SHIT! I wont say..lets see what others think..
investment,returns?
ITS MEDICAL DUDE..ITS YOUR FRIGGIN LIFE
how they forget
ps they are using the rcmp as their strong arm.
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Uncle Reefer
Well-Known Member
you gotta take your gear that should be accounted for 2 years to replace740 to grow a pound indoors?
Not EVER in all my of growing!
P's are CHEAP AS SHIT! I won't say.. let's see what others think..
then your time
then the rent or the mortgage or the value of the space you are using
then power and water
then supplies
Ya if you don't consider all of it it can be cheap but you are subsidizing at that point
2 years? huh
if you are dead NONE OF THAT MATTERS
besides what part about MEDICAL have you missed?
greg nr
Well-Known Member
Meh, remember a few weeks ago when the market went way up just after sessions announced the withdrawal of the cole memo? The cannabis fund monies from the us went north. Prices fell here, and fears calmed. Could just be some of that money is coming back.
And of course investors have a lot of places to put their money these days without over investing in high risk ventures.
But lastly, everyone knows the sector is way over bought. Smart money is taking profit and exiting.
Look, the stock market is not sane nor rational. It is gambling, mostly with other peoples money. Bubble sectors are historically bad places to put your own money, or anyone else's (unless of course you make money no matter how the market performs). It is riddled with insiders who know things before anyone else and whose trades happen before anyone else. It is a rigged game, and you aren't allowed to win anything they don't want you to have.
Will it crash? Not while the fund managers can still make money in it. But they make their money a different way. To them, it isn't important whether a sector goes down; they will still make money and get out before anyone else.
And of course investors have a lot of places to put their money these days without over investing in high risk ventures.
But lastly, everyone knows the sector is way over bought. Smart money is taking profit and exiting.
Look, the stock market is not sane nor rational. It is gambling, mostly with other peoples money. Bubble sectors are historically bad places to put your own money, or anyone else's (unless of course you make money no matter how the market performs). It is riddled with insiders who know things before anyone else and whose trades happen before anyone else. It is a rigged game, and you aren't allowed to win anything they don't want you to have.
Will it crash? Not while the fund managers can still make money in it. But they make their money a different way. To them, it isn't important whether a sector goes down; they will still make money and get out before anyone else.
Uncle Reefer
Well-Known Member
costs are costs man, doesn't matter what it is for
and 2 years, go buy some 2 year old gear, what is is worht to you? What will you pay for it compaired to what was paid for it new?
sick people DONT SELL THEIR MEDS!
what part are you missing again?
2 year old gear? what are you goin on about?
Uncle Reefer
Well-Known Member
My point is that there is very little upside to an LP if you consider how little profit there is in it for them,,, until they start using armies.sick people DONT SELL THEIR MEDS!
what part are you missing again?
2 year old gear? what are you goin on about?
Cheers gb123 I am just commenting on the business of weed in a business thread. of course medical is very important
cannadan
Well-Known Member
as far as LP's go...they make their own problems....
all of them doubling down on their licences and going for massive qty's...with no market to sell to...
med patients can't afford their poisons either...nor would want them in most cases...
that's where growing your own for 60 plus cents per gram....straight up cost...sick don't charge themselves the time involved...
your already invested health wise...
I can afford 60 cents per gram..but .I can not afford 8 buck plus per gram....
looks like Lp's shot themselves in the foot....doesn't it .... at least with the medical patients....
all of them doubling down on their licences and going for massive qty's...with no market to sell to...
med patients can't afford their poisons either...nor would want them in most cases...
that's where growing your own for 60 plus cents per gram....straight up cost...sick don't charge themselves the time involved...
your already invested health wise...
I can afford 60 cents per gram..but .I can not afford 8 buck plus per gram....
looks like Lp's shot themselves in the foot....doesn't it .... at least with the medical patients....
Anothermeduser
Well-Known Member
I believe uncle refer is adressing the competition between the existing market and the new competition and their business plan, and yes uncle you hit the nail on the head, the current model is just what you said, one guy just getting by, the new model supports a whole coporation not just a guy wanting to smoke, and along comes gb123 and reminds us that medical smothers any and everything in his mind, everyones right, no need to argue, ohh wait divide us up and conquor us all
SageFromZen
Well-Known Member
Very well put. Nice job.
The Hippy
Well-Known Member
Hopefully some investors have realized that these weed greeds are way over stocked now and will be in the future. They talk about millions of square feet of greenhouse's being added. Farmer in Quebec wanting to stop growing veggies and grow weed.......FOR WHO?
The smart ones here and there know....overstocked and undersold is going to be the premise.
We know this because ....WE ARE THE MARKET. And we say no thanks. Keep growing it LP's.....that's gonna be your demise. What they gonna do with all the bunk they already can't sell.
The smart ones here and there know....overstocked and undersold is going to be the premise.
We know this because ....WE ARE THE MARKET. And we say no thanks. Keep growing it LP's.....that's gonna be your demise. What they gonna do with all the bunk they already can't sell.
is that what I say. Like youve been here for how long?
If you had been here long enough You'd know I say "Rec and MEd are no different! "
figure that one out and let er rip!
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