Publicly traded cannabis companies and professional investors have been pointing fingers – trying to make sense of the downward spiral. Over a dozen Canadian-based cannabis companies reported quarterly earnings this past week – and it was – as one analyst says, “a bloodletting.”
The latest producer to report disappointing earnings was Edmonton-based Aurora Cannabis. Sales of recreational marijuana were down 33 percent over the last quarter. Mississauga, Ontario-based producer Green Organic Dutchman shares fell sharply following a $20.1 million third-quarter loss, reports CTV News Canada.
The disappointing quarterly showing was very evident. The top five cannabis companies on the market – Canopy, Aurora, Aphria Inc., Tilray Inc., and Cronos Group Inc. – saw a total of $5 billion in market capitalization disappear, according to BNNBloomberg data.
“What you’ve seen is a market that is uncertain on where to go from here,” said Michael Singer, executive chairman of Aurora Cannabis, in an interview with BNN Bloomberg.
Blaming the Canadian retail investors
With marijuana still illegal at the federal level in the United States, large institutions are still reluctant to invest in marijuana, leaving Canadian retail investors in the unique position of dominating the public funding of Canadian pot companies – especially those that operate in the U.S.
Bloomberg, again notes that institutions hold less than 1 percent of the float of Curaleaf Holdings Inc., the largest American pot company by market value. It’s the same with other large U.S. companies, including Green Thumb Industries Inc. at 3 percent and Cresco Labs Inc. at about 1 percent.
This means individual investors have a big influence on the companies. “The stock price is driven by Canadian retail investors, and that Canadian retail investor is a fickle, ignorant investor that doesn’t really understand what they’re investing in,” said Jeff Mascio, chief executive officer of Cannabis One Holdings Inc., a Denver-based pot company, according to the Financial Post.
Other reasons for the slump in earnings
The black market is still alive and well in Canada and the United States, particularly in California. Pot producers have fought back against the illegal market by lowering the price of their pot. Tilray and Cronos have slashed their price-per-gram by almost half. Village Farms International Inc. – a leading producer of low-cost cannabis – slashed wholesale prices from $4 to $2 per gram in its latest quarter.
Ashley Chiu, a manager at Ernst & Young who specializes in the cannabis sector, says that when pot became legal in Canada, producers were able to set their own wholesale prices, and naturally, they were higher than the street value. “Given the shortage of legal products at the time, producers may have been able to get away with that,” Chiu said in a phone interview with BNN Bloomberg. “Now, these prices are coming down as a function of supply and demand.”
And, of course, there is still the lack of enough legal marijuana stores. This is very evident in supply and demand – Cannabis products rose 20 percent this last quarter while sales volumes only rose 5.6 percent. In other words, cannabis consumption in Canada is not keeping pace with the growth in supply.
Het Shah, managing director for New Leaf Data Services, said: “This makes us believe that more product is being pushed to storage and eventually will have to be written down.”
What will improve the downward slump? It could be the rollout of cannabis edibles next month or it may be just a case of the market being fickle. We’ll see.
