Pot stocks rally after historic dip
Analyst calling for a 20% bounce-back among biggest players,
An eight-month rout in pot stocks that wiped out almost two-thirds of their market value may finally have reached its bottom.
A Bloomberg index tracking cannabis companies was on track toward its biggest threeday advance since the beginning of the year after six sessions of heavy losses. Among those leading gains Thursday were Canopy Growth Corp., Aurora Cannabis Inc. and Cronos Group Inc., all of which rallied more than 13 per cent.
Pot stocks hit a “floor” after Canada’s four largest companies all missed earnings estimates last week, said Neil Selfe, founder and CEO of Torontobased investment bank Infor Financial Group Inc.
“I think the crescendo of negative news came to its peak on Friday, and I can see these stocks rebounding from their lows,” he said. “I don’t think we get anywhere back to the highs, but we could see a 20 per cent bounce from here off the lows among the Tier 1 players.”
The rebound is being driven in part by investors unwinding bearish bets in stocks such as
Tilray Inc., whose short interest amounts to 37 per cent of the shares available for trading. Gains in the 20 most-shorted pot stocks cost bears $272 million (U.S.) as of mid-afternoon on Wednesday, according to data from financial analytics firm S3 Partners. Signs that the problems weighing on Canada’s pot giants haven’t crossed the border also are aiding the bounceback. U.S. operators including Trulieve Cannabis Corp., Curaleaf Holdings Inc. and Green Thumb Industries Inc. have all reported strong quarterly results.
“We’ve been table-pounding about the U.S. companies for the last six months and it felt like people weren’t paying attention,” said Charles Taerk, CEO of Faircourt Asset Management, which acts as an adviser to the cannabis-focused Ninepoint Alternative Health
Fund. “I think to a large degree investors still think of the cannabis sector as one homogeneous group and they’re not.”
However, pot stocks have a long way to go before they get anywhere near the highs they reached in the spring. As a stark illustration of how much value has been lost in the sector, Canopy’s market value reached a high of $24 billion (Canadian) in April. Today, the 25 largest Canadian pot companies are worth about $24 billion combined. And while things may be looking brighter for the industry, the problems facing some of its biggest companies haven’t gone away, Taerk said. “A week ago we had some of the major Canadian LPs significantly disappoint on both quarter-over-quarter revenue and from a cash-flow perspective,” he said. “Those issues are going to continue.”