$CGC $ACRGF - Cannabis stocks mixed ahead of shareholder vote on Canopy/Acreage deal
Hexo shares resume selloff after disappointing earnings, although GMP says execution remains on track and reiterates buy rating
Cannabis stocks were mixed on Monday, with market leader Canopy Growth Corp. gaining after it announced its latest growth moves ahead of Wednesday’s shareholder vote on its proposal to acquire Acreage Holdings Inc.
The ETFMG Alternative Harvest ETF MJ, +0.93% was up 0.7% with 18 of its 38 constituents gaining.
Canopy shares were up 0.5%, after the Ontario-based company said it has entered a multiyear agreement with Procaps SAS, a Colombian company that develops, makes and sells over-the-counter medications and nutritional supplements for international drug companies. Procaps will help Canopy produce capsule-based products, which are popular in Latin America thanks to a regulatory regime that favors oil-based products, including softgels.
Canopy is already licensed to grow more than 13.5 million square feet of cannabis in Columbia and has sold its Spectrum Therapeutics medical cannabis brand to patients in Chile and Brazil.
In Denmark, Spectrum has received the licensing for its Odense facility, which will grow, harvest, export and sell medical cannabis in dried flower form. The facility is expected to become the hub for the company’s European supply chain. Spectrum has also received a license to grow and produce cannabis in Spain, which will become its second site in Europe.
Canopy CGC, +1.26% WEED, +0.80% and Acreage ACRGF, +0.17% shareholders will vote Wednesday on their plan to combine. The vote comes after Canopy struck a deal that gives it the right to buy Acreage as soon as cannabis is fully legalized in the U.S. Canopy is scheduled to report its fiscal fourth-quarter earnings on Thursday after the market close.
Piper Jaffray analysts said they came way from last week’s MJBizCon cannabis conference in New Orleans with the view that the industry offers a major market opportunity, despite a cloudy regulatory outlook.
“We continue to expect U.S. legalization in the next 1.5-4.5 years and believe the market opportunity remains significant; while public opinion remains increasingly supportive, politics are complicated, and horse trading will inevitably play a role,” analysts led by Michael Lavery wrote in a note to clients.
Aurora Cannabis Inc. ACB, +0.95% ACB, +0.99% was the only major Canadian licensed player that Lavery saw at the event, which featured CBD companies prominently along with ancillary suppliers, he wrote. The analyst has an overweight rating on Canopy and Tilray Inc. TLRY, +3.74% which was up 5.9%. Aurora was up 0.4%.
In regulatory news, New York lawmakers may vote on a recreational use bill this week, as the legislative session draws to a close, according to advocacy site Marijuana Moment. Staff for the legislative leaders of both chambers met over the weekend with Gov. Andrew Cuomo to discuss a revised plan, after earlier efforts failed to reach agreement.
New York lawmakers are keen that any legislation include provisions to expunge convictions for nonviolent cannabis-related offenses and allow those communities that suffered disproportionately during the war on drugs to benefit from the new legal business.
Hexo Corp. shares HEXO, -2.21% were down 0.5%, continuing the selloff from last week sparked by disappointing earnings, with the Quebec-based company posting a sequential decline in revenue just months after recreational legalization of marijuana in Canada.
GMP analyst Robert Fagan said execution is on track despite the risks in the outlook. Hexo management cautioned that a regulatory-driven delay in the legalization of edibles in Canada, expected for this October, would put its $400 million full-year revenue guidance at risk, as about 25% of its fiscal 2020 sales are expected to come from those products.
“While HEXO will need to generate robust growth in coming quarters to reach its guidance, the company has a strong track record of execution, exemplified by its production run-rate already exceeding that of Canopy at ~40 tonnes annually,” Fagan wrote in a note to clients. “In addition, HEXO has additional growth levers not included in guidance such as the Truss JV, and pending entry to the US.” GMP rates the stock a buy.
Elsewhere in the sector, Aphria shares APHA, +1.28% APHA, +1.21% rose 0.6%, Organigram Holdings Inc. OGI, +1.12% added 1.6% and Valens GroWorks Corp.VGWCF, -0.71% was flat. Aleafia Health Inc. ALEF, -0.77% ALEAF, -1.73% was down 1.5%.
Green Growth Brands Inc. GGBXF, -0.41% was up 0.5%. Green Organic Dutchman Holdings Inc. TGOD, -2.15% TGOD, -2.15% was down 2%.
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