eResearch | The cannabis industry has continued to be one of the most volatile sectors in the stock market as companies struggle to sustain operations due to spending exorbitant amounts of capital to capture a larger piece of the market.
In Q1/2020, most cannabis companies reported positive revenue growths as the majority of them implemented cost-cutting programs and some have reported expectations to be cash-flow positive by year-end.
Earlier this month, in an article called “Most Cannabis Stocks Went Up in April – Are We Past the Bottom”, we provided an analysis of 35 cannabis stocks on the Non-Penny Pot Stock Index (NPSI).
See below details on major events and reports related to the cannabis industry.
Aurora Enters US Market with Reliva Acquisition
On May 20, 2020, Aurora Cannabis Inc. (TSX: ACB) announced an acquisition of Reliva, LLC for approximately US$40 million of Aurora common shares. Reliva sells hemp-derived CBD products in the United States. The transaction is expected to close in June 2020.
In the past year, Aurora struggled to reach profitability due to a deteriorating balance sheet with high capital expenditures. However, after reporting positive revenue growth in FQ3/2020, Aurora’s stock price spiked by 150% to over C$20 per share before settling back in below C$18.
In FQ3/2020, Aurora reported C$76 million in revenue less excise taxes, a 16% increase year-over-year, however, it had net losses of US$137 million, a 14% decrease year-over-year, due to a 15% reduction in operating expenses.
Aurora is obligated to generate positive adjusted EBITDA by Q1/2021 to abide by certain debt covenants, which it plans to meet by implementing several cost cutting programs. Unfortunately, Aurora’s SG&A expenses are still above its total net revenue, and the balance sheet contains C$2.4 billion in goodwill, which accounts for 51% of total assets.
In last month’s article called “Cannabis Companies Count Quarters Until Cash Runs Out While M&A Activity and Financings Drop” we analyzed cannabis-related companies with the highest debt levels to see how long they had to sustain burn rates with current assets.
Hexo Announces C$50M Public Offering
HEXO Corp. (TSX: “HEXO”) announced a C$50 million public offering and the underwriters agreed to purchase 55.6 million units at $0.90 per unit, with each unit consisting of a common share and a C$1.05 warrant. Hexo expects to use the proceeds for working capital and other general corporate purposes.
Cannabis Treatments for COVID-19
This week, the Canadian University of Lethbridge in Calgary reported a study on over 400 strains of cannabis and its benefits in preventing the COVID-19 virus from attaching to a host.
Dr. Igor Kovalchuk, the head researcher of the study, stated that several of the cannabis strains significantly reduced the chance of infection by reducing the number of virus receptors by 73%.
There are 13 identified CBD cannabis strains which could potentially be approved to be developed into consumer products, but peer-reviewed studies are needed for the products to pass regulations.
Further details on other public companies focused on treatments for COVID-19 can be found in the article called “Public Canadian Companies Developing Tests and Vaccines for COVID-19” posted on April 27, 2019.
Canopy Growth Loses Two Executive Officers
Last week, Canopy Growth Corp. (TSX: WEED), announced the departure of its Chief Operating Officer, Andre Fernandez, and its Chief Commercial Officer, David Bigioni, shortly after laying off almost 800 employees due to the pandemic.
Andre Fernandez was Canopy’s 181th employee and has worked for the cannabis producer for almost half a decade, but the excessive workloads convinced him to leave the company. The departures were announced as mutual decisions, and a search for replacements has started.
Green Thumb Industries Triples Revenue
In the past week, Green Thumb Industries (OTC: GTBIF; CSE: GTII) saw its stock price rise by over 25% to US$9.32 as it reported impressive revenue growth and expansions in CPG product sales to over 700 retail outlets, with 42 of its own stores operating across 10 states.
In Q1/2020, Green Thumb Industries had US$103 million in revenue, a 268% increase year-over-year, and reduced its net losses to US$4.2 million, a 70% decrease year-over-year. Its balance sheet consists of cash and cash equivalents of US$72 million and total debt of US$93 million.
While other cannabis producers struggle to meet profits, Green Thumb Industries focuses on scaling its higher margin CPG cannabis products. Green Thumb Industries expects to continue expanding within the U.S. as it still has additional licenses to open 52 more retail storefronts.
Tilray Hopes to Be Profitable by Year-end
Tilray Inc. (NASDAQ: TLRY), a Canadian cannabis producer incorporated in the U.S., had a significant increase in demand for cannabis products due to consumers stocking-up before lockdowns, but continued to report quarterly losses.
In Q1/2020, Tilray had revenues of US$52 million less excise taxes, a 119% increase year-over-year, however, it had net losses of US$184 million, a 526% increase, mainly due to changes in fair value of warrant liabilities related to its registered securities offering.
Tilray is currently undergoing a cost-cutting program, which is expected to help it reach positive cash flows by Q4/2020.
United Cannabis Files for Bankruptcy
Last month, United Cannabis Corporation (OTC: CNABQ), a hemp extractor focused on developing CBD products, filed for Chapter 11 bankruptcy protection in the District of Colorado. The filing outlined a debt obligation between US$1 million and US$10 million to up to 49 creditors.
In the U.S., all cannabis-related companies were restricted from filing for bankruptcy due to cannabis being federally illegal, but in 2018, the Farm Bill passed, which de-scheduled hemp-derived CBD products from the Controlled Substances Act.
However, the U.S. Trustee is likely to dismiss the case, as it did with others before, due to a strict directive to dismiss all marijuana-related bankruptcy petitions. Although United Cannabis’ primary source of income was from hemp-related products, it also offered consulting services to the various companies in the cannabis industry.
//
