No Love For Pot Stocks in February

As if the cannabis industry had not been beaten up enough, along came a Chuck Norris style virus that has imploded the global markets.

The Global Cannabis Index (as managed by New Cannabis Ventures) was down a whopping 21.5% by the end of the month. The Global Index ended 2019 down 34% and is already a further 25% down in 2020.

The global cannabis markets have now been decreasing for 10 of the past 11 months, with only December 2019 breaking the trend, but that was due in part to a crazy 'last day of the year' trading frenzy.

There were, however, some brights moments over the month, along with signs and signals that indicate this definitely has the kind of future that many envisioned. It's just going to take a lot longer and be more brutal along the way, than many first thought.

Canada – Sounds like 'fired' to us

Aurora was in the news again, in part due to the fact that their CEO – Terry Booth – was retiring. Just to be clear, this was the CEO that claimed Aurora would be EBITDA positive a quarter ago, but instead, it's burning more than ever, and running very low on cash in the bank. 

On the back of that statement, Aurora also released its Q2 2020 results…and they were shite. Total net revenue decreased by 25% from Q1, and the adjusted EBITDA came in at -CAD$80 million which was more than double what they burnt in Q1. Retired? Think we're done here.

Aurora also aims to lay off over 500 employees, HEXO recently let nearly 200 employees go, and Tilray announced that they were going to lay off 10% of their workforce. The market is brutal in Canada right now, and investors are looking for positives.

The undisputed market leader is back, baby. Canopy Growth delivered Q3 2020 revenues of CAD$124 million, a whopping 20% higher than analysts' expectations.

With quarter-on-quarter revenue growth of 18% (when many LPs are going backwards), and adjusted EBITDA losses improving by over $64 million in the quarter, Canopy demonstrated that it is growing, and doing so cost-effectively. Long live the King.

Even with Canopy's performance, it was Valens that won the Financial Results of the Month award, when they delivered CAD$30 million in revenue – a whopping 86% increase over the previous quarter. Better yet – profitable! Valens announced adjusted EBITDA of CAD$27.4 million, which was well above analysts expectations of around CAD$22 million. The capital-light, specialist LPs delivering, yet again.

Disclaimer: Past performance is not an indicator of future performance.

And finally, the December results for Canada's recreational market were released and were very encouraging. The market grew by 8% over November, its biggest growth rate to date, driven by the introduction of edibles and extracts. This meant a full year's worth of recreational sales had now taken place, and just over $1.2 billion was spent on recreational cannabis in 2019. This will get bigger!

The US – About Time

The US cannabis companies did not fare any better than their Canadian counterparts, and the American Cannabis Operator Index fell for the eleventh straight month. A decline of 25.5% in February means the index is now down 32.4% for the calendar year to date.

The big news was Curaleaf's acquisition of Select, which was originally announced way back in February 2019 and had been approved by the DOJ and all shareholders. Curaleaf now owns the leading vape brand on the West Coast and can push these products through their East Coast presence, along with a network of over 1,000 dispensaries they current supply.

Disclaimer: Past performance is not an indicator of future performance.

Beleaguered MedMen released their Q2 2020 results and long-term holders and believers must have wanted to vomit. Although revenue of USD$48 million saw an 11% increase over the previous month, the headline fact remained that even with cost-cutting measures in place, their SG&A increased. More than that, they ended the quarter with only USD$21 million in the bank, and a current quarterly burn of around USD$50 million. Getting the picture yet? Yes, Bierman is gone. But the road to salvation is a long one, and for the moment, we remain firmly on the sidelines.

As the Democratic nomination process whittles down, we are left with two primary candidates, Joe Biden and Bernie Sanders, who both have previously articulated their stance on legalizing cannabis – giving voters a glimpse into what the next 4 years might look for pot if they were in the hotbox (so to speak).

Bernie Sanders said he will legalize pot in his first 50 days in office, but given the fact that this plan has no playbook for day 51 onwards, we are not so sure how likely this is. Biden, on the other hand, has hinted that he still fears the Gateway Effect. If we see a Biden presidency in 2020, we may see very little movement when it comes to cannabis whatsoever.

Australia – Podium Positions

And finally, down under, where most of the Australian Stock Exchange (ASX) listed stocks were feverishly producing their half-yearly financial reports. The reports were mostly for the half-year to 31st December 2019, with the exception of Elixinol, which was for the year ended (FY2019).

Althea was the standout with record sales in the lead-up to 31 December of AUD$1.85 million, representing a 963% increase over the previous year. Having surpassed the 4,000 patient number, and having boldly (and successfully) taken the first-mover advantage in the UK medicinal market, we feel the share price is currently on sale. You heard it here.

MGC Pharma also produced the goods with revenue of AUD$1.77 million, a whopping 520% increase over the previous year. The company recently announced the 2,000 patient milestone, and is actively grabbing market share in Australia.

The Cann Group's share price went hyperbolic in January, reaching a high of AUD$1.68. February however, saw the decline from these lofty highs breaking through the dollar mark and ending February 38% down at AUD$0.93. We think this slide is more than fair. 

Disclaimer: Past performance is not an indicator of future performance.

They have yet to finance the Mildura facility build (~$25 million) and have done a small deal with IDT, who themselves lost a massive contract around Xmas time. Still, Cann is up more than 100% from the lows seen in the month of December last year. Investors should be more than grateful for that, until such time as the company demonstrates better execution.

Our pick of the month with the most standout results goes to EcoFibre (ASX:EOF). The hemp-derived CBD player, based out of the US and chaired by none other than Barry Lambert, released their half-yearly results, which could only be described as superb.

EcoFibre Cannabis
Past performance is not an indicator of future performance.
Source: Bloomberg

Revenues were up 118% over the previous period. As much as that increase impresses us, its the actual number that is even more impressive. Revenue increased to just shy of $30m (yeah – you read that right). This is a cannabis company that has been delivering the results for months and months now and has significantly outperformed its market-leading peers (Charlotte's Web and CV Sciences).

And to think Elixinol once stood on the shoulders of EcoFibre as the official ASX Hemporer. We called this fall, in April 2019, and the fall has been mighty. EcoFibre now needs to push on and successfully launch their CBD-anti microbial fibre product – Hemp Black.

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Mark Bernberg
Mark Bernberg

Mark Bernberg is a long-time cannabis investing enthusiast and founder of The Green Fund, Asia Pacific's preeminent media house, positioned at the forefront of the global cannabis industry.

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