Cannabis News

Can Canadian Cannabis Operators Turn it Around?

Cannabis Investing News
hand holding a cannabis plant
Kindel Media / Pexels

Charles Taerk, CEO of Faircourt Asset Management, gave INN an update on his perspective when it comes to Canadian cannabis players.

Canadian cannabis players continue to “spin their wheels” without much promise ahead, one financial expert told the Investing News Network (INN).

Charles Taerk, president and CEO of Faircourt Asset Management, said he is not optimistic about the position of cannabis companies in Canada, including the top firms in the capital markets.

“(Canadian players) continue to not be profitable and are trying to make acquisitions to either build up their position in Canada or in a global market,” Taerk said.

Investors get off the green rush hype train

Over the past few years the market hasn’t been kind to the leading publicly traded Canadian cannabis companies like Canopy Growth (NASDAQ:CGC,TSX:WEED), Aurora Cannabis (NASDAQ:ACB,TSX:ACB), Tilray Brands (NASDAQ:TLRY,TSX:TLRY) and HEXO (NASDAQ:HEXO,TSX:HEXO).

Since the start of 2019, the Horizons Marijuana Life Sciences Index ETF (TSX:HMMJ), a benchmark fund containing large cannabis companies, has declined in value by 60.33 percent.

The performance of individual cannabis players has been similar. One of the main reasons for this downturn can be found in the results reported by these companies. “The Canadian markets are under a lot of pressure,” said Taerk. “From a macro perspective, it's interesting because the total amount of sales in Canada are growing, but the largest companies seem to be suffering from a loss of market share.”

The expert told INN there’s an increasing amount of pressure affecting the domestic market, which then trickles all the way down to the producers themselves.

“There's a pricing pressure in the marketplace that starts at the retail (level), and it keeps backing up to wholesale and ultimately backs up to the licensed producers,” Taerk said.

HEXO deal with Tilray indicative of market conditions

When asked about the recent trend toward mergers and acquisitions in the Canadian cannabis marketplace, Taerk said he’s worried about negative signs from the space.

“We're very concerned that ultimately, some of these names can disappear. There might be bankruptcies,” he said.

The financial expert pointed to the recent business deal between HEXO and Tilray Brands as a sign of a Canadian cannabis producer going for a hail mary.

“HEXO was once one of the top four or five companies in the country ... and now that has all come crashing down for various reasons,” Taerk said. “HEXO is running out of time.”

The expert said the deal opens the door to HEXO being acquired by Tilray. But the recent buying spree from Tilray doesn’t impress Taerk at the moment.

“To us, these transactions that Tilray keeps announcing, these M&A deals, are more to distract investors from wanting them to see the operations — of what hasn't transpired in a positive way,” he commented to INN. “That's kind of our tone on the Canadian marketplace.”

Is it too late for Canadian players to see international opportunities?

In the past, Canadian cannabis companies have pointed to international ventures as a way to translate their expertise in the domestic market into global growth.

Taerk didn't deny the significance of Europe a key growth market in the overall cannabis story. As he explained it, Canadians are currently taking advantage of key markets in Europe where there is demand for medical flower products. But he doesn’t see that as a solid long-term plan for Canada-based players.

“What they're left doing right now is shipping cannabis to markets that are starved for supply,” said Taerk. “But when that changes, and that's going to be in the next year or two, Canadian book sales are going to dry up.”

The financial expert posited that as more legalization efforts pan out in countries with ideal growing conditions, those areas will become the premium export cultivators for the rest of Europe.

This would make the expense of shipping Canadian flower to Europe a difficult proposition.

“We had hoped that the Canadians would use this leadership at the time to hone their skill, reduce costs and become efficient operators, so that they could ship cannabis at an efficient price,” Taerk said.

Investor takeaway

There's no denying that Canadian cannabis players continue to face a serious downturn in sentiment.

As companies in the country struggle to produce positive financials and advance in the market, experts are increasingly turning to the US as a potential source of opportunity.

Don’t forget to follow us @INN_Cannabis for real-time news updates!

Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

The Conversation (0)


S&P 5004282.37+61.35


Heating Oil2.360.00
Natural Gas2.18+0.02