Pot-stock rally takes a breather as Canopy comes up short

The Globe and Mail (Prairie Edition) - - REPORT ON BUSINESS - CHRISTINA PEL­LE­GRINI CAP­I­TAL MAR­KETS REPORTER

The fu­ri­ous rally in cannabis stocks took a breather on Tues­day af­ter the largest pub­lic com­pany in the le­gal Cana­dian mar­ket posted an­other quar­terly loss. Canopy Growth Corp. more than dou­bled its sec­ond-quar­ter rev­enue to $17.6-mil­lion. But, for the fourth straight quar­ter, sales came in be­low the av­er­age es­ti­mates of an­a­lysts on Bay Street. De­spite its grow­ing rev­enue, Canopy re­ported a loss of $1.6mil­lion for the quar­ter ended Sept. 30. Shares of the Smiths Falls, Ont.based com­pany fell 2.1 per cent to $19.96 on Tues­day, as in­vestors took some money off the ta­ble. Canopy wasn’t alone, as shares of many cannabis firms fell early in the day but pared some of those losses dur­ing the trad­ing ses­sion. MedRe­leaf Corp.’s stock was down as much as 13 per cent but closed down 9 per cent. Can­nTrust Hold­ings Inc. de­creased 2 per cent, while Aphria Inc. erased most of its losses to fall 1 per cent. The sec­tor-wide slump on Tues­day came one day af­ter Va­han Ajamian, an an­a­lyst at Bea­con Se­cu­ri­ties Ltd., warned that he was “con­cerned about the po­ten­tial for a ‘profit tak­ing-led’ pull­back in the event [Canopy] misses con­sen­sus again” and also down­graded Canopy’s stock to “hold” from “buy.” Not every mar­i­juana firm was caught in the sell-off. Aurora Cannabis Inc. jumped 7 per cent, Cronos Group Inc. rose 11 per cent and New­strike Re­sources Ltd., backed by mem­bers of the Trag­i­cally Hip, in­creased 7 per cent. The en­tire sec­tor has been on a tear of late, as Canada moves to le­gal­ize the recre­ational use of mar­i­juana within the next year.

Since Septem­ber, the av­er­age pot stock has gained 54 per cent, Mr. Ajamian wrote in a re­port pub­lished on Mon­day. Re­tail in­vestors have been flood­ing the in­dus­try in a bid to cash in as the le­gal mar­ket for mar­i­juana grows in Canada. But th­ese stocks have been vo­latile bets. Tues­day’s pause fol­lows a me­te­oric rise in Canopy’s shares that has cat­a­pulted its mar­ket cap to $3.8bil­lion. Dur­ing the Past two months, the stock more than dou­bled in value, push­ing the price of Canopy’s shares well be­yond even the most ag­gres­sive tar­gets on the Street. It’s 52-week low, how­ever, is be­low $7. Com­pa­nies have been jostling to gear up for when Canada al­lows the recre­ational use of the drug next sum­mer, spend­ing mil­lions in mar­ket­ing and adding to their grow­ing space to beef up their in­ven­tory. Canopy is get­ting ready for le­gal­iza­tion by in­vest­ing to bol­ster its brands of cannabis and ex­pand­ing its pro­duc­tion into new prov­inces. It also has its sights set on grow­ing be­yond Canada’s borders and into mar­kets that in­clude Den- mark and Ja­maica. Last month, Con­stel­la­tion Brands Inc. signed a deal to ac­quire a nearly 10 per cent stake in Canopy for $245-mil­lion. “The com­pany, I think, is do­ing what we usu­ally do, which is driv­ing ahead, look­ing out a year, 18 months and mak­ing sure we’re do­ing the ac­tions to­day that es­tab­lish us as the con­tin­ued leader,” Bruce Lin­ton, Canopy’s chief ex­ec­u­tive of­fi­cer, said in a con­fer­ence call with an­a­lysts. The com­pany was sell­ing mar­i­juana for an av­er­age price of $7.99 a gram in the sec­ond quar­ter. This has grown from $7.01 a gram a year ear­lier and $7.96 per gram in this year’s first quar­ter. It sells 40 va­ri­eties of the drug to serve med­i­cal pa­tients through brands in­clud­ing Tweed and Leafs by Snoop. It sells dried cannabis, oils and gel caps. It had more than 63,000 pa­tients reg­is­tered as of Sept. 30. It had 24,000 clients a year ago and 59,000 as of June 30. Canopy Growth (WEED) Close: $19.96, down 42¢

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