What happened
The WallStreetBets forum on Reddit is getting more publicity this week, with reports on CNBC that the crowd behind the short-lived momentum names is now focused on the cannabis sector.
Trading in the sector is volatile again today, with stocks moving as follows from 10 am EST:
And
Cannabis stocks in general have skyrocketed since the beginning of the year, partly due to policy and hopes for further progress toward US federal legalization, and also growth in some of the underlying businesses, as well as consolidation, with Tilray set to match Aphria (NASDAQ: APHA).
Today, stocks are retreating from disproportionate gains on Wednesday, when Tilray soared 50%, OrganiGram 37% and Sundial Growers nearly 80%. This volatility was probably strongly impacted by retail traders with a focus on the sector. But there is also news from the company for investors to analyze.
Image source: Getty Images.
What now
With stock prices soaring in recent weeks, Sundial took the opportunity to raise capital, increasing cash on its balance sheet. While this is useful, mainly because the company remains unprofitable, it has a cost to existing shareholders. The company’s market capitalization has risen more than 1,200% since the beginning of 2021, while the stock price itself has risen by about 720%. Although both are huge numbers, the difference shows the dilution that existing shareholders suffered in the process.
Tilray had more fundamental reasons for its 2021 earnings. This week, the company announced a new distribution agreement in the UK to accompany other recently announced European expansions. She also recently said that she exported her first shipment of medical cannabis to Spain and received the first and only marketing authorization for medical cannabis products in Portugal. In addition to expanding the business, Tilray plans to team up with Aphria to form the largest global cannabis company in sales. Aphria CEO Irwin Simon will lead the newly combined company that will retain the name Tilray.
OrganiGram’s shares have also more than tripled since the beginning of the year. It is the smallest of the three names, with a market capitalization of just over $ 1 billion, and it is not yet profitable. Last month, the company reported that its first-quarter 2021 net tax revenue from Canadian adult recreational use grew by 30% compared to the prior year period, although its overall net revenue fell by 23%.
Yesterday’s retail trader’s fury appears to be easing today, but there are still some things to like in business, especially if legalization continues to expand in the U.S. But investors must realize the dilution that has occurred to support the balance of Sundial producers, and the struggle for profitability that everyone is experiencing. Investors must focus on the underlying business or dedicate any funds to the speculative part of their portfolio.
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