It seems like it wasn't so long ago that Tilray (TLRY) stock was hitting $300 in intraday trading. Now it's dropped to approximately $104.
Last week, the market welcomed three new cannabis stocks to the trading arena and investors were less than enthusiastic about the valuations. All three stocks opened below the level that the new shares were priced at and all three still haven't recovered to those original prices.
"I think the lackluster open for these stocks is largely attributed to an oversaturation of US cannabis companies listing on the CSE," said Matt Karnes, founder of GreenWave Advisors. "Consequently, it may become increasingly more difficult for similar enterprises to follow. I think the ongoing weakness is attributed to the revenues miss last week by some of the Canadian LPs compounded by the recent market selloff."
Karnes is right. As numerous cannabis companies all jump in the crush to go public, the investors are confused and overwhelmed. As a result, the prices have slumped and the field has become saturated.
Acreage Holdings began trading last Thursday on the Canadian Securities Exchange. The symbol is ACRG.U ( (ACRZF) on the pink sheets) with the "u" indicating that it is a Canadian stock but one that trades in U.S. currency. This caused some confusion on the first day as many new investors weren't sure of the significance of the ".U" and many just dropped the U and then couldn't figure out why their trades weren't going through.
There was a lot of market anticipation for this stock. CEO Kevin Murphy has assembled a star-studded board of directors including former Speaker of the House John Boehner, who is rumored to have been compensated in the seven figures for his participation. There is also former Canadian Prime Minister John Mulroney and former Governor of Massachusetts Bill Weld. It's also the cannabis company with the largest footprint and looks to be run by a solid group of executives.
Acreage priced its shares at $25 but the stock only opened at $19.75. The stock managed to go to $26.18 on Monday but quickly fell back down to $20.50. The company has made the decision to buy the shares a difficult one because it didn't disclose any financial numbers.
President George Allen said he wants investors to buy shares based on the extensive footprint of the company. Since Acreage did an RTO (reverse takeover) it wasn't required to disclose any financial numbers.
Another established cannabis company, MJardin began trading on the Canadian Securities Exchange using the symbol MJAR last Thursday as well. The shares, which also trade on the pink sheets under the symbol (MJARF) , were priced at C$12, but it opened at C$6.75. It managed to get as high as $8.70, but it, too, has slid back down C$7.88.
Unlike Acreage, MJardin readily provided financial numbers, estimating that it will bring in $162 million in revenue in 2019 according to a published investor presentation. The 2020 estimates are for $325 million in revenue. MJardin has real numbers on which it bases its projections, but this is getting lost by the claims of other less established companies.
Unwilling to be left out of the stock party on Thursday, Harvest Health & Recreation also began trading on the CSE following its recently announced RTO with the symbol HARV.CN ( (HTHHF) pink sheets). Its shares were priced at $6.65 or in Canadian currency C$8.67. It opened lower at C$5.50 and then closed down on the first day at C$7. It was lately trading at C$7.24, not nearly off as much as its peers.
The company has licenses to be in 11 states, but at this time is only operational in four states with four stores. Going public brought the company's capital raise up to $218 million.
The RTO was made possible through a series of actions, including an exchange of shares between existing shareholders of the acquired company, a share exchange between existing holders of common shares of Harvest FINCO, Inc., and an amalgamation among the Corporation, Harvest Finco Canada and 1185928 B.C. Ltd. The company said it plans more acquisitions.
One of the reasons the stocks look to be doing so poorly is that investors have trouble discerning the big companies from the small. They all claim to be the LARGEST cannabis company in the MOST states. Yet many of these new companies, with the exception of Acreage, only have plans or options to be in multiple states. They claim to be present in states in which they don't have an actual operation, only a license that was purchased.
Green Growth Brands, for instance, went public in November as well with the symbol GGB.CN following an RTO with Xanthic Biopharma. The company is led by a group of former executives from Victoria's Secret with little cannabis experience, but deep retail experience. They are convinced that the pioneers of cannabis haven't figured out how to be proper retailers. To date, the company only has one dispensary under its belt, but it has a slick presentation deck with beautiful pictures. It acquired The Source in Vegas which already was doing $17 million in sales before the retail experts took over.
If the companies were more upfront about the places where they have physical, live, functioning businesses versus planned businesses, then investors could make better-informed choices. As of now, this lack of transparency in the hopes of cashing in on the "green rush" of the cannabis stock rally only hurts the industry instead of helping it.
The cannabis bull market is quickly turning into a bear.
