By Ciara Linnane, MarketWatch
“Rather than be wildly profitable in two years, we expect the Canadian LPs to be roughly break-even,” said Kirk. They would need to keep their sales, general and admin. costs flat — which is unlikely — and that would barely produce the P&L leverage to reach consensus estimates. Companies would need to move from about C$500 million ($377 million) in EBITDA losses in the current year to a C$900mn EBITDA gain in two years.
By comparison, the U.S. government has calculated that Mexican cartel chief El Chapo (Joaquin Guzman) made over $12 billion from his illegal drug trade, while the top Canadian growers have cumulatively lost $1.4 billion, said Kirk.
Canopy stock was last up 2.4%, Cronos was up 1.9%, Aurora was up 3.9%, Tilray was dup 2% and Hexo was down 0.4%.
Canaccord analysts named three picks in the sector that are showing improving fundamentals in a tricky time for the industry. Ayr Strategies /zigman2/quotes/201137876/composite AYRSF -2.76% , a multi-state operator with its main operations in Massachusetts and Nevada, will benefit from a shift away from vapes following a short-term ban in the Bay State, according to analyst Bobby Burleson.
“Rising wholesale spot prices are likely to become more evident in coming weeks and could serve as a near-term catalyst for AYR’s shares,” he wrote in a note to clients.
Planet 13 Holdings /zigman2/quotes/202325829/delayed CA:PLTH -0.28% , a Las Vegas-based cannabis dispensary, is expected to benefit from continued strong sales and falling costs as its ramps production, said the analyst. Plus Products /zigman2/quotes/208568000/composite PLPRF +4.68% , a leader in CBD-infused gummies, is expected to benefit from a shift to non-vape consumption, said Burleson, which he said is already evident in channel checks in California.
Plus Products stock was up 6%, while Ayr was down 1.6% and Planet 13 was down 2.3%.
From Marijuana Business Daily comes the news that the wholesale cannabis market has remained largely unmoved by the current outbreak of severe lung disease that is believed to be tied to vaping. The disease, which has killed 12 people and sickened more than 800 , according to the Centers for Disease Control and Prevention, was expected to discourage consumers from vaping cannabis products and move them to flower and pre-rolls instead. But wholesale cannabis growers said pricing has not moved dramatically during the crisis, and the percentage of flower being purchased has barely changed.
In California, for example, the percentage of flower purchased as of Sept. 22 was 40.7%, down from 41.1% on Sept. 1. In Colorado, the percentage has climbed to 50.1% from 45.3%.
In company news, Tilt Holdings /zigman2/quotes/204513522/composite TLLTF +4.04% said it has negotiated an agreement with six of its remaining founders, under which they will forfeit all 60.2 million stock options granted at the time of the reverse merger of four companies that created Tilt last year.
Tilt stock was last quoted at the stock trading at 31 cents, up about 44%. The company reported stock-based compensation expense of $47 million in the second quarter because of the stock options.
“Adjusting for the subsequent forfeiture, TILT’s Q2 2019 net loss of $48.9 million would have been almost entirely reduced, bringing the company close to break-even,” it said in a statement. Tilt made headlines in May when it booked a goodwill impairment charge of about $500 million in its first quarterly report after going public. That led to a massive loss of $554.5 million on sales of $5.7 million.
Chief Executive Alex Coleman told MarketWatch at the time that the charge was because the company used one methodology on Dec. 6, 2018, to value the companies that merged to form Tilt Holdings, and a different set of standards on Dec. 31.
For more on this, read: How a freshly grown cannabis company managed to lose $500 million in less than a month
Elsewhere in the sector, Organigram /zigman2/quotes/209289540/composite OGI +1.60% was up 2.3%, Green Growth Brands /zigman2/quotes/204912440/composite GGBXF +2.40% /zigman2/quotes/205269595/delayed CA:GGB +25.00% was up 4% and Aleafia Health /zigman2/quotes/203485112/composite ALEAF -1.65% was down 0.9%. Aphria Inc. /zigman2/quotes/207425803/composite APHA -4.08% /zigman2/quotes/205566616/delayed CA:APHA -3.07% was up 5%, MedMen /zigman2/quotes/201940908/composite MMNFF +4.55% was up 7% and GW Pharma /zigman2/quotes/209686240/composite GWPH -17.21% was down 2.5%.