Pot stocks were ravaged today when two of the largest pot stocks in the industry, both of which used to be favorites among Wall Street, ended up reporting disappointing quarterly results.Canopy Growth ( NYSE: CGC), the world’s largest pot stock by market cap, was hit particularly bad on Thursday following the news, with shares falling by a double-digit margin after it posted disappointing results.
While bad news about the firing of its iconic CEO and co-founder, Bruce Linton, earlier this year sent a wave of worry throughout cannabis investors, fears surrounding Canopy Growth really started when the company reported a whopping $1 billion quarterly loss back in August. While the company has enough cash to last it some time, seeing a loss of such magnitude was quite concerning for investors and analysts alike.
In regard to its most recent results, Canopy’s net revenues ended up at only $76.7 million, with a further $32.7 million in product returns weighing down on the company’s income. Overall, revenue had gone up by just 2% over the past three months, a disappointingly low figure in an industry where double-digit growth rates between quarters are the norm.
“The last two quarters have been challenging for the Canadian cannabis sector as provinces have reduced purchases to lower inventory levels, retail store openings have fallen short of expectations, and Cannabis 2.0 products are yet to come to market,” said Mark Zekulin, Canopy Growth’s CEO. “However, we believe these conditions are a short-term headwind in what is a brand-new industry, and Canopy continues to be best positioned with cash-on-hand, a world-class infrastructure, and a portfolio of intellectual property to deliver sustained, long-term market leadership.”
Problems surrounding the Canadian pot market include a lack of dispensaries and a buildup of inventory. While provinces such as Ontario have expressed interest in adding new stores, progress has been slow. Coupled with the fact that cannabis producers across the country are continuing to ramp up production, the biggest producers such as Canopy are being hit hard by this bottleneck in supply, forcing them to sell their cannabis for increasingly lower prices. In turn, this ends up having an adverse effect on profit margins.
Canopy Growth fell by an astonishing 14.3% over the course of the day following the results. Just like Aurora Cannabis, Canopy has also lost just over two-thirds of its market cap over the past six-months. Overall, it’s fair to say that for cannabis investors, we’ve officially entered a “dark age” of stock returns, one that doesn’t seem likely to change at least for a couple of quarters at the minimum. At the same time, with prices for many stocks have already fallen by 60% to even 80% in some cases, it’s hard to recommend shorting as a valid strategy considering that prices might be nearing a bottom.
Canopy Growth Company Profile
Canopy Growth, headquartered in Smiths Falls, Canada, cultivates and sells medicinal and recreational cannabis, and hemp, through a portfolio of brands that include Tweed, Spectrum Therapeutics, and CraftGrow. Although it primarily operates in Canada, Canopy has distribution and production licenses in more than a dozen countries to drive expansion in global medical cannabis and also holds an option to acquire Acreage Holdings upon U.S. federal cannabis legalization. – Warrior Trading News
