Marijuana Stocks

Hexo Earnings Miss Plagues the Marijuana Market

When bitcoin and other cryptocurrencies were tumbling from their highs, investors found some solace in a mobile game called Crypto Rider.

It’s a 2D racing game based on the historical price charts of bitcoin, ethereum, dash, ripple and other cryptocurrencies.

The volatility in prices made for some wicked fun courses.

In light of the continued bear market cannabis is seeing, I was thinking…

I wonder how long until either “Cannabis Rider” or “Pot Stock Racer” is released, allowing marijuana investors to do the same.

Crisis Continues

The vaping-associated pulmonary injury (VAPI) crisis has reached full-blown epidemic level.

We’ve been covering the number of cases reported by the Centers for Disease Control and Prevention (CDC) each week. And this past week, that number took a frightening turn.

The CDC reported Thursday that 1,299 VAPI cases are confirmed. And the number of people who have died has risen to at least 26 across 21 states.

That’s a 20% increase in the number of cases from the previous week. But a 44% increase in the number of fatalities.

As expected, states are shutting down the sale of flavored e-cigarettes and vape products.

Oregon is the latest to institute a six-month ban. It joins the ranks of Michigan, New York, Rhode Island, Washington and others to temporarily put the kibosh on these sales until some answers are found.

On a related front…

Northeast Regional

On Thursday, officials and law enforcement from Connecticut and New York are holding a summit.

“Policies governing vaping products and recreational marijuana will require regional symmetry,” New York Gov. Andrew Cuomo said. “Because, it makes little sense for one state to do something if a neighboring state has a totally different policy.”

So we’re seeing the emergence of a regional strategy to legalize and regulate. This is particularly vital in light of the concerns facing the industry.

But it isn’t merely American cannabis grappling with serious issues…

O’Cana-D’OH!

A bleak alarm went off last Thursday.

And the mayhem that ensued was triggered by Canada’s Hexo Corp. (NYSE: HEXO).

The Canadian producer announced preliminary fourth quarter results that seriously spooked investors.

Hexo said fourth quarter revenue would be between $14.5 million and $16.5 million. And full-year revenue would be between $46.5 million and $48.5 million.

This fell short of Wall Street’s expectations.

Hexo blamed the slow pace of store rollouts, delays in government approvals for derivatives products and lower-than-expected product sell-through. The company also said there were early signs of pricing pressure being felt across Canada.

And just to make sure the news was all bad, Hexo withdrew its 2020 revenue guidance.

Misery loves company.

So not only did Hexo shares get hammered, but so did shares of every other Canadian licensed producer, American multistate operator and ancillary cannabis business.

In fact, pot stock shares not only set new 52-week lows but also fell to their lowest level since 2017…

Chart - North American Marijuana Index

Plenty of cannabis shares bounced higher on Friday. What we might refer to as a “dead cat” bounce. But we still saw new 52-week lows from Canopy Growth Corp. (NYSE: CGC), Hexo, RavenQuest BioMed (OTC: RVVQF) and more.

The High Five

Below are this week’s High Five, where – each Monday – I cover the five pot stocks I believe will make major moves – up or down – in the week ahead.

1) Aphria (NYSE: APHA) has all eyes on it. After Hexo’s whiff, investors are looking hopefully at the fellow Canadian pot stock.

Aphria is scheduled to report first quarter earnings tomorrow morning before the market opens.

Expectations are for revenue to skyrocket 1,214.5% to $100.2 million. Of course, the focus will be on earnings per share and how much of a loss will be reported.

2) Valens GroWorks (OTC: VGWCF) will report third quarter earnings after the closing bell tomorrow.

The Canadian extractor is expected to see revenue skyrocket a ridiculous 70,465%. And then revenue should go supersonic, increasing 177,000% in the fourth quarter to more than $20 million.

3) Aleafia Health (OTC: ALEAF) shares were one of those to strike new 52-week lows on Friday. Most noteworthy though, the company terminated its deal with Aphria last week. And it did so because Aphria failed to meet the supply obligations under their contract.

Aleafia doesn’t think terminating this deal will have any material impact on its business.

4) MedMen Enterprises (OTC: MMNFF) announced last week that it was terminating its merger with PharmaCann.

In December 2018, when the California-focused MedMen unveiled this $680 million acquisition, it was the largest in U.S. cannabis history. Of course, in the near year since, that torch has been passed several times.

MedMen will now focus its retail efforts on California, Florida, Illinois, Massachusetts, New York and Nevada.

5) Tilray (Nasdaq: TLRY) shares got torched on Thursday, hitting new 52-week lows.

But it had some good news to report…

Fluent Beverage – the joint venture between Tilray and Anheuser-Busch InBev (NYSE: BUD) – plans to sell nonalcoholic, CBD-infused beverages in Canada as early as December 2019.

The downside is Tilray’s price target was cut to $18.95 (CA$25).

As always, we like to compare the performance of our High Five with the benchmark Horizons Marijuana Life Sciences Index ETF (OTC: HMLSF).

If you’re a skier, the price chart for pot stocks over the past month probably seems like a great slope to try out…

Chart - The High Five

Over the past month, MedMen has been the only one of this week’s High Five to fall further than the marijuana ETF. But it’s been difficult all around.

For investors, it’s been a frustrating search for the bottom.

Every time we think we may have found it, a new sinkhole emerges, dragging shares to new lows.

We’re heading into cannabis earnings season. There are only a couple of companies on deck this week. But the calendar is getting more packed as we drive deeper into October and November.

We’ll be looking for one of those to provide some shelter from the storm.

If you have a pot stock in mind that you’d like me to discuss here, leave a comment below.

Here’s to high returns,

Matthew


About

Matthew’s expertise ranges from classic industries such as oil and mining to cutting-edge markets like small cap tech, cannabis, 3D printing and cloud computing. With almost two decades of financial experience under his belt, Matthew’s knack for finding market trends never fails to surprise us, which is why we keep a close eye on his free e-letter, Profit Trends.

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