What happened
Cannabis stocks are on a wild ride this week, starting with conversations among Reddit users that have likely caused an increase across the industry. This trend was reversed on Thursday, however, and stocks are rebounding again today.
Actions of OrganiGram Holdings (NASDAQ: OGI), for example, fell 14% on Friday morning, before reverting to a 15% gain from 10:55 am EST. Actions of Aurora Cannabis (NYSE: ACB) and HEXO (NYSE: HEXO) they also fell by double digits at the start of the session, but fell again to a 7% drop and a 3% gain, respectively.
And
Along with the volatility of retail trade, there is some news for investors to digest today. Aurora Cannabis announced its fiscal 2021 second quarter results last night, reporting progress on its business transformation plan.
Image source: Getty Images.
What now
Aurora spent much of last year raising capital and restructuring its businesses in an effort to contain its losses. The changes included job cuts, closing operations to consolidate production and selling additional inventory. The objectives are to reduce expenses, examine capital expenditures more closely and improve the balance sheet in order to achieve profitability.
In a recent business update, however, Aurora warned that its business strategy “back to basics” “will delay the company’s ability to obtain positive adjusted EBITDA as management invests in its consumer businesses.” But in yesterday’s report, the company said it was making good progress on the plan. “We are confident that this will give Aurora maximum flexibility and will position the organization to generate significant cash flow in the coming quarters,” commented Aurora CEO, Miguel Martin, regarding the new strategy. The company reported that net consumption and medical marijuana revenue increased 25% and 42%, respectively, compared to the previous year.
OrganiGram reported that its Canadian adult recreational net revenue grew 30% in its fiscal report for the first quarter of 2021 last month, but overall net revenue fell 23% compared to the prior year period. With a market capitalization of around $ 960 million, OrganiGram is smaller than these peers, and some investors believe it has more potential.
Another investor optimism comes from speculation about legalization in the United States. Some Canadian cannabis producers are already positioning themselves for the possibility. HEXO has just appointed a general manager of operations in the USA to oversee the growth initiatives of Truss CBD USA, the company’s joint venture with the brewery Molson Coors (NYSE: TAP). The company is also working with “potential non-beverage CPG partners with whom we are in ongoing discussions” as part of its US operations, according to HEXO CEO and co-founder Sebastien St-Louis.
Investors in the cannabis sector need to be comfortable with volatile stock prices, as experienced today. As the sector continues to develop, however, there will be more business fundamentals to follow, rather than simply speculating on potential growth. This is where the focus of the investor must remain.