Pot’s Leaders Lag as Small Names Step Up: Cannabis Weekly – Bloomberg

Plunging Pot Prices Have Legal Growers Scrambling To Lower Costs

Photographer: David Ryder/Bloomberg

Photographer: David Ryder/Bloomberg

The leaders have become the laggards.

Canopy Growth Corp. and Tilray Inc., trailblazers for the global cannabis industry, last week reported disappointing results and indicated that profitability is a long way off, sending both stocks to double-digit declines.

Meanwhile, some smaller names are racking up breakout quarters demonstrating the breadth of the industry.

Supreme Cannabis Co. said it expects to report positive adjusted earnings before interest, taxes, depreciation and amortization in the quarter ended June 30 when it releases results on Sept. 17. Analysts were expecting a loss and the shares jumped 16% in response.

MediPharm Labs Corp. reported a small net income and revenue of C$31.5 million, which GMP Securities analyst Ryan Macdonell estimated is the fifth highest in the Canadian industry. “This achievement is particularly impressive considering Q2/19 is MediPharm Labs’ third quarter of sales,” Macdonell said in a note.

And Pure Sunfarms Corp., which is jointly owned by Village Farms International Inc. and Emerald Health Therapeutics Inc., reported a net income of C$37.2 million, the biggest to date in the industry.

Short Gusher

Perhaps it’s not surprising then that Canopy and Tilray are two of the most-shorted cannabis stocks and the biggest money makers for the counterparties who loan out their shares to short sellers.

Financial analytics firm S3 Partners compiled a list of the stocks with the largest daily earnings from short sellers, who pay a fee based on the number of shares shorted, the price of the stock and its borrow fee.

Stock-Loan Money Makers

Canopy was second on the list, and 10 of the top 50 were cannabis-related stocks. Lending out Canopy’s U.S.-listed shares earns $719,557 a day and its Canadian shares earn an additional C$161,112. Tilray makes its stock lenders $295,116 a day.

However, that pales in comparison to first-place Beyond Meat Inc., which earns $1.8 million a day.

Black Market

Canopy’s less than stellar results included an unexpected revenue decline that was one of only two reported so far this quarter, according to Cowen & Co. analyst Vivien Azer. (The other one was Organigram Holdings Inc., which attributed the drop to “changes in growing protocols” that affected yields and have since been corrected.)

One of the problems was a surplus of oils and softgels at provincial wholesalers, which forced Canopy to record an C$8 million provision for potential product returns.

Soft demand for oil products across the industry was “a bit concern,” Cowen’s Azer said.

Canopy also appears to have significantly underestimated the demand for products that contain a lot of THC, the cannabis compound that gets you high. To make up lost ground, Canopy shifted its mix of strains and over 70% of its harvest in the quarter was high in THC, Chief Executive Officer Mark Zekulin said in an interview Thursday.

The lack of high-THC products may be part of the reason a large percentage of consumers remain in the black market. Statistics Canada released data last week that found 42% of cannabis consumers bought at least some of their pot from illegal sources in the second quarter.

Store Scarcity

Another problem is the lack of retail stores in Canada’s two most populous provinces, Ontario and Quebec. While Ontario has roughly one store for every 600,000 people and Quebec has roughly one store for every 500,000 people, Colorado has one for every 10,000 people.

Pot-Shop Scarcity

Zekulin described the situation as a “chicken-and-egg scenario,” where the provinces were reluctant to open more stores until they knew they could secure more high-THC product, while the companies were waiting for more stores in which to sell their products.

More stores are on the way, indicating that shortages are easing. Ontario this week will hold a lottery for 42 new cannabis retail licenses with the first newcomers anticipated to open in October.

Upcoming Events This Week


  • Ontario holds a lottery for 42 new cannabis retail store licenses, with results to be announced within 24 hours


  • Cresco Labs Inc. reports earnings post-market with a call scheduled for 5 p.m. New York time

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