Canadian marijuana stocks were under significant pressure after the TSX released comments about owning U.S. cannabis assets and after several leading cannabis firms announced financings at a discount to the current market price.
We remain favorable on the Canadian marijuana market and will monitor how these stocks trade today. Yesterday’s pullback took place on heavy volume and for many stocks, this caused momentum to trade below overbought levels.
Pullbacks of this size are healthy and we will be keeping a close eye on how the market trades from here. We want to highlight some of the recent company developments as well as the associated price movements to help provide insight into what is going on.
Emblem Corp. (EMC.V) (EMMBF)
Yesterday, Emblem plunged more than 15% after the licensed marijuana producer agreed to sell $12 million worth of units at $1.75 each to Eight Capital on a bought deal basis.
Emblem plans to use the proceeds to fund construction of the first 100,000 sq. ft. production facility and for working capital. Emblem expects the built-out production capacity to be used to address Canada’s recreational market.
Shares of Emblem were trading at $1.96 at the close of business on Monday so we are not surprised by the negative response from the market. The shares are trading at $1.65 after this drop and we are favorable on the shares after this move lower. We will keep an eye on how Emblem trades from here and have the company near the top of our radar.
Aphria (APH.TO) (APHQF)
Aphria had one of its worst trading days of all-time yesterday and this comes after the TSX comments and a $80 million bought deal. The licensed medical marijuana producer ended the day down 13% and we are monitoring how the shares trade today.
Yesterday, Aphria announced an agreement with Clarus Securities, on behalf of a syndicate of underwriters, who agreed to purchase $80 million worth of common stock at $7.25 each on a bought deal basis. The company intends to use the proceeds for the development of infrastructure, the expansion of its geographic footprint in Canada and other strategic investments, and for general working capital purposes.
Shares of Aphria were trading at $7.92 at the close of business on Monday. When you combine the discounted offering price with the comments from the TSX Exchange, the pullback was not surprising.
iAnthus Capital Holdings (IAN.CN) (ITHUF)
iAnthus Capital Holdings has been under pressure for the last quarter and the shares are down more than 25% during this time. The Canadian company was formed to make investments in United States cannabis businesses and it currently owns assets in Colorado, New Mexico, Vermont, New York, and Massachusetts.
To date, iAnthus has invested in finance and management partnerships in 5 states, potentially comprising 15 dispensaries, 7 cultivation facilities, and 4 processing facilities. We are favorable on the moves iAnthus has made and continue to keep a close eye on the company.
We are not surprised by the weakness yesterday since Canadian companies with U.S. assets have come under the microscope. Although iAnthus trades on the CSE Exchange, not the TSX, we think investors are concerned because of the nature of the conversation. We will monitor how the shares trade after the recent comments from the CSE.
Aurora Cannabis (ACB.TO) (ACBFF)
Aurora continues to execute on initiatives, expand its geographic reach, and focus on increasing production capacity. When a company executes at a level like this, it does not come cheap but it certainly pays off when successful.
Many investors were upset by Aurora’s recently announced financing agreement because they have concerns with the company’s high share count. Although the share count is high, it is nothing to be concerned with.
Aurora needs capital in order to execute on its cannabis business initiatives that are taking place on three continents and we remain bullish on the long-term outlook. The company continues to execute and we are favorable on its ability to create value for shareholders.
Aurora is laser focused on capitalizing on trends (i.e. cannabis oil and international exposure in Germany and Australia) and we think the company is targeting the right opportunities. The licensed producer has more than 19,000 registered patients in Canada and this is a stock investors need to watch.
Source: Technical 420