Rough Week In Cannabis Sector Capped With Gut Punch From Ontario
This first week of April has been the never-ending week for the cannabis industry that has been continuously gut punched on a daily basis. The week started off bad enough, with earnings from Hexo Corp (TSX: HEXO) (NYSE: HEXO) and Cronos Group (TSX: CRON) (NASDAQ: CRON) disappointing the market.
Monday morning began with the news that Medmen Enterprises (CSE: MMEN) would be cancelling guidance for the year, despite the endless cost cutting measures they have been taking. Further to that, the company continued its death spiral financing with GGP, with the latest round dropping to US$0.26 per share.
The morning only got worse from there however, with the aforementioned Hexo Corp reporting revenues that grew slightly on a quarter over quarter basis, however the company had so many writedowns that it effectively wrote off the Newstrike Brands transaction. Overall, the company reported a net loss of $298.2 million. The net loss was largely the result of endless impairments that covered inventory, goodwill, intangible assets, property plant and equipment, and restructuring costs. The final gut punch came from its creditors, who demand that that company raise $40 million by April 30. If they fail to do so, hexo will default on its currently outstanding credit facility.
Medipharm Labs (TSX: LABS) did little to help calm concerned cannabis investors as a whole, with the company reported a decrease in quarterly revenues of 25%. This decrease came at a time when revenues were expected to ramp as a result of cannabis 2.0 products becoming legal during the quarter, which should have provided a boost to the cannabis extractor. Instead the company saw most balance sheet items decrease on a quarter over quarter basis.
Medipharm’s frequent partner Cronos Group (TSX: CRON) (NASDAQ: CRON) didn’t have much better results either, with the company reducing annual revenues by $7.6 million. The decrease was the result of a forensic audit conducted in relation to revenue recognition between the two firms. Cronos initially rallied on the news however in after hours trading, as investors initially perceived the decrease to be baked in due to earlier guidance.
And then came Sundial Growers (NASDAQ: SNDL). If the sector wasn’t hurt already by those who reported earlier Monday, Sundial’s late night release of filings did nothing to help. The grower reported a revenue decline of 32% on a quarter over quarter basis, but that wasn’t even the worst part of the financials. Sundial revealed that it was in breach of covenants on certain credit facilities, and as a result has been forced to sell its UK assets, known as Bridge Farm. What’s more, the sale has to occur by April 15, and the company has to enter into a financing strategy with the lenders to prevent further default. Finally, the company also wrote of $100.3 million, or approximately 79%, of the purchase price of Bridge Farm – less than 6 months after closing the transaction.
And that, was Monday.
Tuesday didn’t start off much better, with Canntrust Holdings (TSX: TRST) (NYSE: CTST) finally caving under the weight of its ongoing debt obligations and being forced to acquire creditor protection. Current shareholders as a result are left wondering what will happen to their investment, as the NYSE and TSX both look to rapidly de-list them from the exchanges. James Wagner Cultivation (TSXV: JWCA) followed the trend on Wednesday, entering into a “consensual restructuring” with that of Trichome Financial (CSE: TFC).
Mjardin Group (CSE: MJAR) momentarily broke the trend, announcing that it would be walking from a joint venture transaction and reducing its operations across the US. The trend however was a popular one, with True Leaf (CSE: MJ) also announcing that it had effectively gone bankrupt on Thursday. and as a result would be seeking creditor protection.
And finally, never one to miss a party or a bit of drama, Green Growth Brands (CSE: GGB) announced this morning that it’s CBD business unit would be going into receivership, and would in fact not be purchased by its semi-related party BRN Group.
And that, brings us to Friday afternoon. While one would think it was a rough enough week for the cannabis sector, the provincial government in Ontario, Canada’s largest province by population, disagreed. The Ontario government delivered what will (hopefully) be the final punch to the cannabis sector this week by no longer deeming cannabis retailers as an essential service. While producers can stay open, retailers will not, effectively cutting off a major portion of the cannabis market. As of right now, it is believed that the Ontario Cannabis Store might be staying open for online orders, however that isn’t entirely clear at this time.
Cannabis retailers in the province will be forced to close operations Saturday night for at minimum 14 days.
The author has no securities or affiliations related to any organization mentioned. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
As the founder of The Deep Dive, Jay is focused on all aspects of the firm. This includes operations, as well as acting as the primary writer for The Deep Dive’s stock analysis. In addition to The Deep Dive, Jay performs freelance writing for a number of firms and has been published on Stockhouse.com and CannaInvestor Magazine among others.
