Overall this was a positive for the cannabis sector.  The ETFMG Alternative Harvest ETF (MJ) traded up about 15%.  This was due not only because of the rise of the overall market but also because of positive news out of Aurora Cannabis (ACB).  Whenever a large-cap stock, especially one as popular as ACB announces news, whether positive or negative it usually has a huge impact on the sector. 

This week’s earnings seasons continued as some of the largest MSO’s including Curaleaf and Trulieve reported earnings. Both companies had an impressive quarter and we saw Trulieve hit a fresh 52-week high after their earnings release. As many Canadian licensed producers struggle to achieve profitability in the highly regulated local markets, companies like Trulieve have been profitable for years. Investors are starting to get their hopes up that Ontario, Canada’s most populous province, will continue to allow retail to roll out, so companies can grow revenues in the quarters to come.  

Aurora Cannabis (ACB) announces entry into US CBD market

Once again Aurora Cannabis grabbed the spotlight this week as they would be acquiring a CBD retail company called Reliva.  ACB has been planning their entry into the US CBD market for the past year. The company was acquired for $40 million in stock, it has no debt, and is already profitable. Their products are sold in over 20,000 retail locations across the US. Shares of ACB traded over 30% higher following the announcement.  Many questioned how ACB was going to be able to turn things around, especially after announcing a reverse stock split. 

Green Growth Brands files for Bankruptcy

This week Green Growth Brands filed for bankruptcy. The company has been struggling to survive in these tough economic conditions and has filed for insolvency protection under the Companies Creditors Arrangement Act. They have obtained an order from the Ontario Superior Court of Justice granting the Applicants protection under the CCAA. This paints a grim picture for many similar cannabis companies struggling for survival as the market has been an extremely difficult place, especially since the global pandemic has hit. 

HEXO Corp. (HEXO) raises another C$50 million

This week HEXO announced that they would initiate a C$50 million underwritten public offering. The company stated the pricing of its previously announced overnight marketed public offering at C$0.90 per unit. The underwriters for the offering agreed to purchase 55,600,000 units from the company which totals gross proceeds of C$50,040,000 for HEXO. Each unit will consist of one common share of the company along with one half of one common share purchase warrant of HEXO. The warrant will be exercisable to purchase one common share of HEXO for up to 5 years following the closing date of the offering. The warrant’s exercise price is $1.05 per warrant share which is subject to adjustment in certain events. 

HEXO has been struggling to keep adequate liquidity in the company as they continue to burn through cash on their path to profitability. Due to their constant capital raises, investors have found themselves drowning in dilution as the stock price tanks. Many investors are concerned that HEXO will need to initiate a reverse stock split similar to ACB and reverse splits are not generally favored. The bottom line is that HEXO needs to get their cash burn under control and produce more revenue. The longer it takes for them to turn a profit, the more we expect shares to fall.

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ACB shares were trading at $16.29 per share on Friday afternoon, down $1.11 (-6.38%). Year-to-date, ACB has declined -37.15%, versus a -8.20% rise in the benchmark S&P 500 index during the same period.

About the Author: Aaron Missere

Aaron is an experienced investor who is also the CEO of Departures Capital. His primary focus is on the cannabis industry. He also hosts a weekly show on YouTube about marijuana stocks. Learn more about Aaron’s background, along with links to his most recent articles. More...

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