Canopy Growth Corp. led another massive sale in the Canadian cannabis space on Thursday after a loss of profits has prompted investors to look again for a downward position in the battered sector.
Canopy closed more than 14% after posting a net loss of $ 374.6 million in its second fiscal quarter, and shares are trading at levels not seen since December 2017.
On Friday, Aurora Cannabis Inc. opened more than 10% after posting a 24% decline in sales over the previous quarter.
Both retail and institutional investors have reached the cannabis industry fund several times through an eight-month-old bear market that saw the North American Marijuana Index lose almost 60 percent of its value. But instead of investing in these stocks just before a recovery, they caught falling knives.
Finding a background in marijuana stocks proved particularly challenging given the constant cycle of bad news, including lack of profitability, significant write-downs and, in some cases, declining cash reserves and withdrawn guidance.
"Every time you think we saw most of the bad news, something like today comes up with Canopy," said Jason Zandberg, an analyst at PI Financial. "It's almost impossible to choose where the fund is, because it doesn't become a function of valuation, it becomes a function of fear and panic when the stock is being sold."
And the sale is probably not over yet, warns Zandberg. He expects stocks to continue to decline throughout December as investors engage in tax-impaired sales to offset winners in their portfolios. If investors are willing to take the risk from there, Zandberg suggests that they must be strict in their selection criteria – or risk investing in a company that may not be around much longer.
Companies need a defensible niche or market share to separate themselves from the group, he said, pointing to Supreme Cannabis Company Inc., which is known as a premium flower seller. Next, investors should look at the fundamentals, he said, and see if their prospective investments have an operating cash flow. There were only six or seven of those names that made the last time Zandberg checked.
"To win you need to have a ticket and to get a ticket you have to have money," he said.
Richard Croft, chief investment officer of the Toronto-based Croft Financial Group, recalls watching the marijuana space in 2017 before the big race and not being convinced by the industry. This stance has made him lose the green wave, he admits, but with the stock on sale, he's not being tempted to look for an entry point. Instead, he prefers to adopt a covered calling strategy.
The only one I was looking at is Canopy and I don't think I'd be jumping on it either.
Richard Croft, Investment Director, Croft Financial Group
"The only thing I would look at is Canopy, and I don't think I would go into that either," said Croft, who said he would look for a fund by determining whether the stock moved two patterns. deviations below the 50-day moving averages.
Zandberg expects that in January, markets will finally begin to reverse the introduction of edible products, vapes and extracts.
It is the failures in the recreational market that led Purpose Investments portfolio manager Greg Taylor to significantly reduce his exposure to Canadian cannabis LPs. Taylor has a higher cash position – 20% – than Canadian cannabis stocks – about 15%. Most of its portfolio is in US cannabis stocks.
The launch of recreational marijuana was not as successful as investors expected, said Taylor, who specifically pointed to Ontario. There are only 24 stores in operation in the province, while Alberta, where the population is about one-third of Ontario, has over 300. Licensed producers built massive stocks that they could not sell and had to readjust to a reality where space was scarce. retail.
The only pieces Taylor still sees upside down are the pullers that will benefit from the launch of cannabis 2.0 products. For others, he recommends waiting and seeing the approach until "Ontario is fixed."
"Space may be in the penalty box for a while in Canada and people who want exposure will be looking elsewhere," Taylor said.