The cannabis space is still working to measure the impact of the coronavirus, with new projections for sales and stocks continuing to hit the market.
This week two companies in the sector also reported management changes, with one coming due to a switch in direction and the other resulting from an investigation surrounding the outgoing CEO.
Read on for a closer look at some of the biggest cannabis news over the last five days.
CIBC slashes Canadian retail sales estimates
In a note this week, CIBC analysts John Zamparo and Seth Rubin shared their thoughts on how the cannabis space fared in Q1 and what could be coming for the rest of the year.
They noted that while the questions that existed at the beginning of 2020 remain — such as how Canada’s rollout of Cannabis 2.0 products will go and which companies will be victims of the challenging capital landscape — COVID-19 has added another layer of difficulty for cannabis businesses.
“We believe the industry will navigate through this, and though a paring of industry participants is inevitable, the next 18 months should reveal who can thrive in a very competitive sector,” they said.
The extensive report covers a wide range of developments and potential catalysts in both Canada and the US. Here are a few quick snapshots:
- Canadian retail sales to come in much lower — CIBC now expects Canada’s retail cannabis sales to come in at C$2.5 billion this year and C$4.1 billion next year; that’s down from previous estimates of C$3.4 billion and C$5.5 billion, respectively. Zamparo and Rubin said the original projections were based on a wave of expected new stores in Ontario and other provinces.
- Forced innovation to propel sector — Many cannabis market watchers have pointed out that the industry has had to quickly adapt to COVID-19 with offerings like curbside pickup and more extensive online ordering — developments that would normally have taken much longer to roll out. “We expect we’ll see two years worth of innovations in two months,” said the analysts.
- US regulatory outlook unclear — It’s an election year in the US, but Zamparo and Rubin expect little “meaningful cannabis reform” in 2020 and even 2021. They cited the likelihood of a second term for current US President Donald Trump as one reason that’s the case, but also pointed to “the sheer number of legislative priorities that outrank cannabis.” These existed even before COVID-19.
Cannabis stocks may be rebounding from COVID-19 lows
Cannabis advisory firm Viridian Capital Advisors offered some hope this week for cannabis investors, saying that deal activity indicates that stocks may be coming off lows seen due to COVID-19.
Its latest deal tracker report, which covers April 20 to 24, indicates that capital raise activity in the marijuana space rose for the second week in a row. The firm recorded six transactions worth a total of $61.9 million; half of them were equity-based capital raises as opposed to debt-based financings.
While cannabis deals are still down substantially from a year ago, when Viridian recorded 18 transactions totaling $850.7 million, it said equity-based capital raises are on the rise compared to debt-based financings, which is a positive sign for the sector.
“For the second week in a row we’ve seen an uptick in equity-based capital raises, reversing a nine-month trend where debt financings increasingly dominated the capital raising landscape,” said the firm.
“Once again, this is likely indicative of the fact that a number of public cannabis stocks bounced off of their lows after the initial impact on stock prices from COVD-19, leading more public companies to accept equity deals that became less dilutive.”
Management shakeups at Supreme and iAnthus
This week also brought a number of management changes in the cannabis space.
On Monday (April 27), The Supreme Cannabis Company (TSX:FIRE,OTCQX:SPRWF) appointed Beena Goldenberg as president and CEO. Goldenberg, the former CEO of Hain-Celestial Canada, has replaced Colin Moore, who had served as the company’s interim president and CEO since January.
Moore took the helm at Supreme after the departure of Navdeep Dhaliwal, which came as the company sought to “accelerate its transition into a premium cannabis consumer packaged goods company.”
His removal was met with trepidation by CIBC’s Zamparo, who argued at the time that while a leadership change might be a good move in the long term, the immediate effect was to leave investors with “more questions than answers” about Supreme’s future. The company faced a sharp decline in value during Dhaliwal’s time as leader, and has largely trended down in 2020.
Also on Monday, iAnthus Capital Holdings (CSE:IAN,OTCQX:ITHUF) CEO Hadley Ford resigned from his position, with Randy Maslow to take up the position of interim CEO. Ford and Maslow co-founded iAnthus in 2014, and the company is currently in the midst of a strategic review.
Ford stepped down after a special committee made up of independent directors concluded that he had entered into two undisclosed loans worth a total of US$160,000 that “created a potential or apparent conflict.” They should have been disclosed to iAnthus’ board in a timely manner, but were not.
“The Special Committee did not find a basis to conclude that Ford’s conduct in the face of the potential or apparent conflict impacted the terms, timing, or negotiations the Company had with the related-party or the non-arm’s length party,” the company’s release states.
However, not disclosing the loans was a breach of Supreme’s policies. The special committee was formed after allegations were made against Ford at the end of March in online media.
Cannabis company news
- Canopy Growth (TSX:WEED,NYSE:CGC) continues to make cuts, with reports surfacing this week that it has laid off a further 200 employees in Canada, the US and the UK. This is the company’s latest move made as part of a major restructuring under new CEO David Klein.
- Harvest Health & Recreation (CSE:HARV,OTCQX:HRVSF) plans to divest select retail assets in California to High Times Holding. In total, Harvest will sell High Times Holding 13 operational and planned dispensaries in the state for $80 million, mostly in stock. High Times Holding is best known as the owner of cannabis magazine High Times; this will be its first foray into retail.
- Privately owned Omura announced that Bruce Linton, former CEO of Canopy Growth, participated in its latest fundraising round and has become a strategic advisor to the company. Omura now has $5 million in capital to apply toward expansion and technology growth.
- Waterloo Brewing (TSX:WBR) said it has suspended its plans to develop cannabis-infused beverages. Although it secured the necessary licensing and prepared its facilities for production prior to legalization, the company said that since then “the route to market for cannabis-infused beverages and the associated market opportunity has become less clear and highly uncertain.”
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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.