Can Canadian Cannabis Operators Turn it Around?

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.”

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.