The ruthless summer of 2019 for the marijuana market has claimed many victims as investor confidence in the sector has dwindled.
In an exclusive interview with the Investing News Network (INN), the leading executive team of Cannabis One Holdings (CSE:CBIS) expressed their frustrations at the present landscape for marijuana companies. Cannabis One is a brand operator across North America with retail and cultivation assets and a strong presence in Colorado and the Pacific North West.
Cannabis One CEO Jeff Mascio and President Josh Mann said their cannabis company had faced some challenges as it adjusted its overall strategy and now focuses on operating as an aggregator of top tier cannabis brands in the US.
For a variety of publicly listed marijuana companies, the turn in investor sentiment has resulted in a significant downturn for stock performances. The overall market has felt a shift in the previously seen hype surrounding the emerging investment area.
“It’s not even just investor sentiment, I think it’s investor makeup,” Mascio said in relation to the adjusted outlook for cannabis stocks.
The change has also led to mid-tier and smaller valued companies to struggle for financing options.
In September, the firm closed the second tranche of a non-brokered private placement for total gross proceeds of C$1.76 million. Cannabis One informed shareholders the resulting cash would be used to assist the closing of certain acquisitions and to fund the operation expansion in Colorado and Washington.
Did investor sentiment change too fast for cannabis stocks?
“The entire market has really moved to a show me model,” Mann said.
After months dominated by hype and speculation, the marijuana investment market faced a drop back that has led to an entire reevaluation of the segment as it stands today and the valuations seen for large Canadian entities and US state players.
So far in 2019, shares of Cannabis One have been rocked by the pullback in the market, from a year-high price of nearly C$5 back in April to current prices in the C$0.20 range.
Over a year-to-date period, the company has dropped 91.33 percent in value. “We’ve been hit along with the rest of the market,” Mann said.
The executive duo explained this resulted in the restructuring of the company. “We grew too big too quickly from a headcount standpoint and from an operational standpoint,” Mann said.
The executive added the company adjusted its growth strategy and now it doesn’t pursue growth for the sake of it but rather in the pursuit of profits.
The change has also led to an adjustment in the ways to evaluate potential target candidates for acquisitions.
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When it comes to acquisitions the metrics have changed
From the perspective of an acquiring company, the entire handbook on purchases was thrown upside down after the blockbuster Constellation Brands (NYSE:STZ) investment deal into Canopy Growth (NYSE:CGC,TSX:WEED), according to the executive duo.
Mascio said the company’s acquisition targets have been greatly reduced since not many operations can match their desired metrics.
“We’re seeing a number of prior targets for acquisition (that are) no longer our target because the investor desire to invest in a company that is … basically operating losses is no longer the landscape we’re operating in,” Mascio said.
The CEO said positive earnings before interest, tax, depreciation and amortization (EBITDA) has become a key signal for increasing interest in acquisitions.
Mann added that, while the metrics have adjusted, the firm is still interested in making deals work by aiding the acquisition to reach the desired goals.
“We have been getting down in the trenches and really fixing businesses,” Mann told INN. “And I think that’s one place that we are going to differentiate ourselves is that we are not afraid to do that.”
Consolidation talk has long been a prediction for the marijuana stock market. Many experts don’t see the market sustaining the number of listings currently seen in the space. Mascio told INN he agrees with the theme of consolidation continuing across the cannabis arena in order to survive.
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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.