eResearch | Cannabis stock prices continue to be under pressure as the overall market struggles to find footing amid the coronavirus crisis, with numerous companies announcing impairments, write-downs, deal adjustments, and financings. However, some companies continue to execute partnerships and launch new retail stores.
Horizons Marijuana Life Sciences ETF (TSX: HMMJ), the first established cannabis ETF in the world, has dropped in price by 20.9% year-to-date and 62.9% in the last-twelve-months, mainly due to a mismatch between supply and demand.
CHART 1: HMMJ (Blue line) vs S&P 500 (Red Line) – LTM Stock Performance
Canadian Cannabis Industry – COVID-19 Impacts
Overall, the cannabis industry in Canada held its ground during the peak of the pandemic, as Statistics Canada reported a record-breaking C$181 million in sales for the month of March, a 19% increase month-over-month. In the following month, the cannabis industry maintained stability and sales dropped only 0.6% to C$180.1 million.
In April, multiple provinces allowed cannabis retailers to open and provide delivery or pick-up services to consumers, including Ontario, Quebec, Alberta, and British Columbia. However, last week, the government emergency order expired in Ontario, ending all cannabis orders from retail stores.
Cannabis stock prices are expected to be under pressure as the overall market continues to operate in a very uncertain economic environment.
Impairments, Write-downs, and Deal Adjustments
Last month, Aurora Cannabis Inc. (TSX: ACB), a Canadian cannabis producer, announced expectations of impairment charges of C$60 million from the closure of five facilities and the furloughing of 700 employees, in addition to C$140 million in charges from adjustments to inventory valuations due a change in forecasted demand.
Last quarter, Aurora announced write-downs of C$750 million and impairment charges of C$200 million, in addition to laying off 500 employees and suspending the construction of its 1.6 million sq. ft. production facility.
Aurora is currently trading at C$16.04 per share, down 13.7% since the announcement. The stock price is down 49.7% year-to-date and down 86.2% in the last twelve months.
Last month, Acreage Holdings Inc. (CSE: ACRG.U), a multi-state cannabis operator, reported FQ1/2020 earnings with losses on impairments of C$188 million, which increased net losses to C$172 million, a 621% increase year-over-year.
Acreage’s impairment charges were double the estimated costs for the quarter, as Acreage increased its investments and asset acquisitions within certain U.S. states. However, many of these U.S. assets were much higher on the accounting books than current fair market values, resulting in downward adjustments.
Acreage is currently trading at US$2.39 per share, down 2.6% since the earnings report. The stock price is down 57% year-to-date and down 82% in the last year.
At the end of last month, Canopy Growth Corp. (TSX: WEED), the world’s largest cannabis company, announced a significant re-pricing of its deal to acquire U.S. cannabis operator, Acreage. The original acquisition price of US$3.4 billion was reduced to US$843 million, comprised of fixed and floating shares. The new deal also includes an up-front cash payment of US$37.5 million.
Canopy announced the acquisition last year, which was to be executed upon federal legalization of cannabis in the U.S. However, both companies agreed to restructure the deal due to the challenging economic environment and volatile financial market conditions.
Canopy is currently trading at C$21.77 per share, down 3.7% since the announcement. The share price is down 16.7% year-to-date and, over the past year, down 57.6%.
Financings
Last week, Curaleaf Holdings, Inc. (CSE: CURA), a multi-state cannabis operator, announced a private placement of C$27.5 million in subordinate voting shares at a price of C$7.70 per share. The funding was connected to Curaleaf’s previously announced acquisition of GR Companies, Inc. (“Grassroots’) and is expected to close on July 16, 2020.
Last year, Curaleaf announced a US$875 million acquisition of Grassroots, a multi-state cannabis cultivator and retailer who expanded Curaleaf’s operations to 19 states from 12. The acquisition combined the largest public and private multi-state operators in the U.S., bringing together a collective 131 dispensary licenses, 68 operational locations, and 20 cultivation sites.
Curaleaf is currently trading at C$7.68 per share, a 5.2% drop since the announcement. The stock price is down 3.5% year-to-date and down 14.1% in the last twelve months.
In June, Auxly Cannabis Group Inc. (TSXV: XLY) with exclusive agent, AltaCorp Capital Inc., announced an additional C$3 million worth of unsecured convertible debentures on top of its recently announced C$25 million facility. The conversion price was C$0.31 per share, alongside warrants that had an exercise price of C$0.37 per share.
Auxly intends to use proceeds towards working capital, in addition to the launch of its 2.0 cannabis derivative products this year, manufactured by its subsidiary, Dosecann LD Inc., who has supply agreements with Shoppers Drug Mart.
Auxly is currently trading at C$0.28 per share, down 37.4% since the initial announcement of the C$25 million facility. The stock price is down 50.9% year-to-date and down 61.6% in the last year.
At the end of June, BC Craft Supply Co. Ltd. (CSE: CRFT) announced a non-brokered private placement of C$1.7 million at a price of C$0.05 per unit, which consisted of one common share and one-half of one warrant.
BC Craft expects to use the funds towards working capital and general corporate expenses, to continue its strategy in building partnerships and supporting efforts in cultivation and supply chain needs for growers, manufacturers, and retailers.
BC Craft is currently trading at C$0.10 per share, unchanged since the announcement. The stock price is down 9.1% year-to-date and down 98.4% in the last twelve months.
Partnerships, M&A, and Other Deals
Last week, Fire & Flower Holdings Corp. (TSX: FAF), a Canadian cannabis producer, announced the opening of two retail cannabis retail locations beside Circle K stores in Alberta. To facilitate these openings, Fire & Flower partnered with Alimentation Couche-Tard Inc. (TSX: ATD.B), the owner of the Circle K branded convenience stores.
Trevor Fencott, CEO of Fire & Flower said, “This approach to innovation in omni-channel and convenience-oriented cannabis retail differentiates Fire & Flower and positions us well to capitalize on both domestic and international opportunities.”
Fire and Flower is currently trading at C$0.77 per share, up 2.7% since the announcement. The stock price is down 12.5% year-to-date and, in the last year, down 28.7%.
PHOTO 1: Fire & Flower and Circle K Retail Shops Side-by-Side
Last month, BevCanna Enterprises Inc. (CSE: BEV), a manufacturer of cannabis-infused beverages, announced an all-share acquisition of Exceler Holdings Ltd., a private company located in British Columbia.
Exceler Holdings is expected to provide BevCanna access to multiple distribution points in various markets, including Europe and Asia. The acquisition will support BevCanna’s expected CBD beverage product launches in the European Union.
BevCanna is currently trading at C$0.25 per share, down 21.9% since the announcement. The stock price is down 34.2% year-to-date and down 34.2% in the last twelve months.
At the end of last month, in a bought-deal arrangement, Aurora announced a C$26.7 million divestment from its stake in Alcanna Inc. (TSX: CLIQ), Canada’s largest private sector retailer of alcohol, with 231 stores in Alberta and British Columbia. Alcanna also operates a total of 31 cannabis retail stores, 30 in British Columbia and one in Ontario.
Aurora invested in Alcanna early 2018, acquiring an approximate 25% stake worth C$34.6 million at the time, which Alcanna planned to use towards launching a chain of cannabis retail shops, branded Nova Cannabis.
Alcanna is currently trading at C$3.66 per share, up 13.6% since the announcement. However, the stock price is down 15% year-to-date and down 36.6% in the last year.
For other Cannabis updates from eResearch:
- In June, eResearch published an update on the cannabis beverage market, in an article called “Cannabis Beverage Market Update – New Products, M&A Deals, and Financings”
- In May, eResearch published the previous update on the cannabis industry, in an article called “Cannabis Update – Aurora Enters US Market, Hexo to Raise $50M and More”
//
