Is this Why Canopy Growth and Aurora Cannabis Dropped More Than 10% on Monday…

Yesterday was a tough day for the cannabis sector and Canadian Licensed Producers (LPs) were especially impacted by the volatility.

Canopy Growth Corporation (TSX: WEED) (Nasdaq: CGC) and Aurora Cannabis Inc. (TSX: ACB) (Nasdaq: ACB) are two well-known Canadian LPs which fell more than 10% to start the week and we want to our readers to be aware of the decline.

Both Canopy Growth and Aurora Cannabis have fallen more than 75% so far this year and we believe the next two quarters are crucial for each business. In future quarters, we expect profitability to be a main topic of discussion and will monitor how (if) the management teams can accomplish this milestone.

The management teams behind both Canopy Growth and Aurora Cannabis have been laser focused on executing on strategies to become profitable. Parts of these strategies include tactics like firing employees, closing facilities, divesting assets, and restructuring the balance sheet.

Three Trends to be Aware of

Although the cannabis sector has been negatively impacted by several factors, we are of the opinion that three key factors had the most significant impact on the sector. These factors are:

1. Higher cost of capital – Canadian LPs have been receiving less favorable treatment from the capital markets. The change has raised the cost of capital for companies like Canopy Growth and Aurora Cannabis and we consider this to be significant
2. Smaller market share – During the last two years, we noticed a shift in consumer purchasing patterns (based on data from cannabis analytic firms). The shift has impacted both Canopy Growth and Aurora Cannabis and we will monitor how the companies respond to the change
3. Margin compression – As competition for Canada’s cannabis sector increased, businesses have been forced to lower prices to attract consumers. The trend is impacting profit margins and we expect to see additional price compression

If you are interested in learning about cannabis companies which have been under the most pressure, please send an email to support@technical420.com with the subject “Undervalued Cannabis Operators” to be added to our distribution list.

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Michael Berger is Managing Partner of StoneBridge Partners, LLC and Founder of Technical420.com. Prior to entering the cannabis industry, Michael was an Equity Research Analyst at Raymond James Financial covering the Energy Sector. Michael has been featured in publications such as The Street, Bloomberg, US Money News, and hosts various cannabis events across North America.

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