Cannabis Weekly Round-Up: Financials Lead to Red Trading Week

During the past trading week (August 12 to 16), Canadian cannabis producers reported heavy losses that affected the trading market.

A report on the irregular activity that led to a 40 percent spike for a struggling Canadian company made headlines, while a new partnership involving a sports organization that will oversee the launch of cannabidiol (CBD) branded products also caught attention.

Here’s a closer look at some of the biggest news during last week’s trading period.

Quarterly report season in full swing

This past week, several marijuana firms informed the market of their quarterly performances. Investors saw a mix of results during the week as some companies reported significant losses.

On Thursday (August 15), Canopy Growth (NYSE:CGC,TSX:WEED) reported a net loss of nearly C$1.3 billion for the first quarter of its 2020 fiscal year. The loss led to a double digit drop for shares of Canopy in New York and Toronto.

According to the Canadian firm, the loss is mainly attributable to a one time non-cash charge of C$1.2 billion on the retirement of warrants held by alcohol maker Constellation Brands (NYSE:STZ).

Analysts from Canaccord Genuity and BMO Capital Markets agree that the results from the marijuana firm are underwhelming. Matt Bottomley, cannabis analyst at Canaccord Genuity, wrote that the financials were well below his own expectations.

CBD producer Charlotte’s Web Holdings (TSX:CWEB,OTCQX:CWBHF) offered investors a clear picture of the growth expected in the CBD space across the US market. The company reported revenues of US$25 million for its Q2 results and total net income of US$2.2 million.

During a conference call on the results, Deanie Elsner, CEO of Charlotte’s Web Holdings, said she sees the US Food and Drug Administration (FDA) offering clear guidelines for the CBD market later this year.

“In the United States we are cautiously optimistic that the FDA is moving in the right direction,” she said, “and we believe they are committed to finding a positive path forward for the industry.”

The executive team of multi-state operator Trulieve Cannabis (CSE:TRUL,OTCQX:TCNNF) reported a spike in revenue thanks to the start of sales for smokable marijuana products in its home state of Florida.

The company now has 30 stores in the state and plans to open 14 before the end of the year. Trulieve accounts for 52 percent of the dried marijuana flower sold in Florida, as per state regulators.

Short sellers see gains thanks to cannabis losses

This past trading week, cannabis short sellers took in substantial gains thanks in large part to the hefty losses posted by leading marijuana companies.

After Tilray (NASDAQ:TLRY) reported a quarterly net loss of US$35.1 million on Wednesday (August 14), short sellers made US$250 million, according to a report from research firm S3 Analytics.

The report, written by Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, indicates that while marijuana shorts have faced a tough year, the recent losses in the market have aided those with short positions.

“Short selling is fairly concentrated to a handful of names, with the top 20 shorts making up over 85 (percent) of the total shorting executed in the sector,” Dusaniwsky wrote.

In an exclusive interview with the Investing News Network (INN), Kevin Shin, co-founder and CEO of private equity and venture capital firm Grove Group Management, explained that private investment in cannabis has risen thanks to the explosion of hemp-derived CBD products.

“Investors are getting more interested in finding out what CBD is … People are seeing this as an emerging market in investment,” Shin told INN.

Shin said the signing of the farm bill in late 2018 opened the floodgates of private investment due to the legalization of hemp and its derivatives.

Boxing authority joins cannabis market

On Thursday, the World Boxing Council (WBC) announced a new venture for the launch of branded hemp-derived CBD wellness products with Albuquerque, New Mexico-based manufacturer Craft 1861.

Mauricio Sulaiman, WBC president, said this partnership and the launch of these new products could aid in the transformation of the entire professional sports community.

No launch date was given in the statement, but the two groups confirmed they will seek to sell these wellness products in training facilities, retail outlets, online and at event venues.

A portion of the sales for all branded products will be sent to the WBC José Sulaimán Boxers Fund to assist retired professional boxers experiencing financial difficulties.

Cannabis market update

Experts say irregular trading activity for struggling Canadian cannabis producer CannTrust Holdings (NYSE:CTST,TSX:TRST) can be explained by a rebalancing of the ETFMG Alternative Harvest ETF (ARCA:MJ).

In a note to investors, 420 Investor analyst Alan Brochstein wrote that the move by the ETF led to a 40 percent spike in value for the shares of the Canadian firm.

“Beyond the irresponsibility of doing such large trades late in the afternoon on a summer Friday (August 9), one must question the wisdom of adding to CannTrust, given the issues that the company is facing,” Brochstein wrote.

According to a report from Bloomberg, the ETF added 5.5 million shares of the struggling producer. Brochstein indicated that the company now holds a 3.8 percent weighting in the fund.

The gains seen from the irregular trading were quickly slashed on Monday (August 12) when the company confirmed that a second of its facilities was deemed non-compliant by Health Canada.

“We are looking at the root causes of these issues and will take whatever remedial steps are necessary to bring the company into full regulatory compliance as quickly as possible,” newly instated interim CEO for CannTrust Robert Marcovitch said in a press release.

A hemp-derived CBD producer in the US was forced to address its own projections after its shares took a hit from the market.

Joseph Dowling, CEO of San Diego-based CV Sciences (OTCQB:CVSI), issued a letter to investors addressing their concerns after he predicted that the upcoming quarter will see he company face stronger competition.

“We pride ourselves on giving comprehensive quarterly updates, and our discussion of increased competition reflects what we see in our business today,” Dowling wrote. “But, as I noted on our second quarter conference call, incremental competition may lead to choppy quarter to quarter results.”

The company said these estimates are due to the increasing entry of CBD producers across the US market.

A new report this past week from Marijuana Moment shows that the US Drug Enforcement Administration (DEA) has not acted on applications for cannabis producers to grow research-grade marijuana exclusively for studies.

As of this writing, researchers in the US can only use federally legal marijuana from a facility at the University of Mississippi.

Over two dozen research groups have stepped forward with applications since the DEA opened the doors to applicants to become federal manufacturers back in August 2016. And, since then, the federal agency has not approved any of these candidates.

In a press release, Biopharmaceutical Research Company (BRC) CEO George Hodgin expressed his frustration with the DEA’s delays. The company applied for the federal research grower status.

“In its refusal to process BRC’s and others’ applications, the DEA and the Department of Justice are delaying legitimate research that will help health care providers better understand the medicinal value of cannabis, as well as provide government authorities with the knowledge necessary to effectively regulate it,” he said.

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