The cannabis industry has changed a lot in the span of one-year and this is a trend that our readers need to be aware of.
In 2018 and 2019, the cannabis sector peaked from a capital raising and share price standpoint and the trend over the last year has been difficult. Cannabis companies were raising capital like it was growing on trees and $100 million private placements became a thing of normalcy for Canadian cannabis producers and even their far less mature American counterparts.
So far this year, cannabis companies have raised more capital from the sale of debt instead of equity and this is a trend that shown no signs of slowing down. The sizes of the capital raises have been slashed by more than 75% and we are seeing companies complete small private placements ($2 million to $10 million).
Another major change that has occurred during this time is related to the number of companies that are listing on major stock exchanges like the Nasdaq and the New York Stock Exchange (NYSE). Now, companies have to worry about maintaining its listing and we expect to see a number of companies get de-listed from these major stock exchanges later this year.
Today, we want to discuss 3 company developments that highlight how much the industry has changed from 2018 and 2019. We believe that these examples provide an interesting look at the changing nature of the industry and will be monitoring these opportunities.
CannTrust: Is a De-Listing in its Future
CannTrust Holdings (TRST.TO) (CTST) is the perfect example of a cannabis company that went wrong. Last year, the company lost a majority of its value after Health Canada discovered that it was cultivating cannabis in rooms that were not approved by the agency. Following this discovery, CannTrust announced a shakeup in the management team and the advisory board.
This development played a key role in the downturn of the cannabis industry and we believe that it shook the confidence of the market. CannTrust was once considered to be one of the best in the business and the shuttering of the operation put additional pressure on an emerging industry.
Going forward, we believe that CannTrust is in rough shape and would not be surprised if the symbol was delisted from the NYSE. Currently, the Canadian cannabis producer is trading below the price level that is required by the exchange and we will monitor the trend on a going forward basis. Unless the company takes extreme action to raise the stock price (i.e. a reverse stock split), we expect to see it delisted by the exchange.
Tilray: A Fall From Grace
Tilray Inc. (TLRY) is the perfect example of a stock price that ran too far, too fast. Shortly after the Canadian cannabis producer completed an initial public offering (IPO) on the Nasdaq, the stock ran as high as $300 per share. During this time, Tilray became one of the most talked about companies on CNBC and we became cautious at this time.
One of the issues about Tilray’s rally is related to its inability to raise equity capital at the time. Many investors were fearful of the company when the stock price was trading north of the $100 level and this was a trend pushed us further on the sidelines with the opportunity. Tilray was able to raise debt capital while its stock was trading above the $100 level and this has always been an issue for it.
Fast forward to today and Tilray is trading well below the $5 level. The Canadian cannabis producer has been unable to find a bottom, and this is a trend that has put pressure on the entire cannabis industry. Going forward, we will continue to remain cautious with Tilray and will monitor how the story evolves from here.
Aurora Cannabis: Former CEO Sells His Entire Position
Aurora Cannabis (ACB.TO) (ACB) is one of the best-known cannabis companies and is a business that we have been closely following since inception. The last six months have been difficult for the Canadian cannabis producer and the stock is back to trading below the $1 level.
Earlier this month, Aurora Cannabis announced that its former CEO, Terry Booth, had sold the remaining stock that he owned in the company. The writing was on the wall from the transaction following his resignation and we believe that the sale removed an overhang from the stock.
Aurora Cannabis has a strained balance sheet and it will need to raise capital in order to execute on its growth strategy. Similar to CannTrust, we believe that Aurora Cannabis will have to take action to remain listed on a major stock exchange and would not be surprised if the company announced a reverse split.
Although Aurora Cannabis has substantial growth prospects, the recent trend has been to the downside and we will monitor how the new leadership team is able to drive the story forward from here. We believe that the company’s retail operations in Canada will be impacted by the coronavirus and this is something that our readers need to be aware of.