The downward trend in the stock prices of the biggest cannabis companies in Canada, including Aurora Cannabis (TSE:ACB), Canopy Growth (TSE:WEED) and Cronos Group (TSE:CRON) has triggered unrest amid investors. However, smaller caps from the US, like Veritas Farms Inc (OTC:VFRM), bring renewed confidence in the outlook of the cannabis industry.
The 10% drop in Hexo’s stock price on Monday was a reminder that last week was quite painful for cannabis producers. Announcements of declining results and restructuring of activities have become more frequent.
Hexo’s stock market crash on Monday followed the announcement, after the markets closed on Friday, of the destruction of unauthorized cannabis grown in Ontario. Investors quickly drew a parallel with CannTrust, which is struggling to recover its license after Health Canada discovered illicit cannabis crops in unauthorized areas of its Ontario facilities.
However, analysts believe that the situation is less serious for the Quebec producer, who immediately notified Health Canada after discovering an unlicensed crop at a Niagara facility that it had just purchased. Nevertheless, the stock continued its slide on Monday, increasing to 81% the price fall since its peak last May.
Aurora, for its part, saw its share price fall by 16% on Monday, accumulating a 77% drop since last March’s peak. On Friday, Aurora announced lower financial results and the interruption of the construction of two facilities in order to lower its planned spending.
“The past few months have been difficult for the entire cannabis industry with governance issues, changing consumer demand and causing bottlenecks with provincial retailers,” said business leader Cameron Battley, in an article in The Canadian Press.
Aurora posted net income of $10.4 million for the quarter ending September 30, compared to $104.2 million a year earlier. Net revenues were $75.3 million, up from $29.7 million.
Another suffering cannabis company is Green Organic Dutchman, which announced a loss of $20.1 million in the third quarter, compared to a loss of $11.3 million a year earlier. The Ontario producer’s share price fell 7.1% Monday to $0.65, inflating to 88% of its decline from a high of $5.48 last March. The Mississauga-based company associated these results with the increased costs of its expansion into commercial production, which included the construction of facilities in Quebec and Ontario.
The downward trend on the stock market seems to be contagious
Canopy Growth is not to be outdone. Its shares lost 7.4% on Monday to close at $18.78, extending the plunge to 73% from the $69.90 peak it hit last April. On Thursday, the Ontario producer reported a loss, forcing a restructuring of its product portfolios.
The loss amounted to $374.6 million in the second quarter, compared to $331 million in the same quarter last year. Net income was $76.6 million, down 15%, forcing the producer to warn that its revenue target of $250 million for the fourth quarter could be revised downward. These revenues amounted to $90.5 million in the first quarter.
Acting Canopy CEO Mark Zekulin pointed out that Canadian market opportunities “simply do not meet expectations. At the risk of oversimplifying, the Ontario government’s inability to allow retail stores from the outset simply means that half of the expected market in Canada does not exist,” he told The Canadian Press.
Organigram Holdings joined the bloodbath. The stock lost 10.5% Monday to 2.72%, increasing its loss to 75% from its high of $10.72 in May. The cannabis producer said on Tuesday that its net income for the fourth quarter would be lower than that of the third quarter, at $16.3 million, compared to $24.8 million.
Cronos Group was down 2.5% Monday to $8.15 per share, bringing its decline to 74% from last March’s high of $31.77. Excluding a one-time accounting gain, the Toronto producer posted an operating loss of $23.9 million for the most recent quarter, compared to $3.2 million a year earlier.
After angling to obtain extremely high profits, Canadian cannabis companies found themselves in the difficult position of announcing that their high expectations were not met. The high losses encountered by the biggest players in the cannabis industry triggered investor uncertainty, but there is still hope among investors, as the quarterly results of smaller caps demonstrate the nascent cannabis market has huge potential.
Veritas Farms shows increasing revenues while Canadian giants are struggling to cope with losses
Over the border, in the US, the stock market looks way better for smaller cannabis companies that plan to pursue the North American cannabis market. Veritas Farms Inc (OTC:VFRM) is one cannabis company that has what it takes to become one of the dominant players in the cannabis industry.
Veritas has built its brand around transparency, with a focus on the astonishing potential of the CBD market. Founded in 2015, under the name of SanSal Wellness Holdings, the company’s gross profits grew year by year, reaching $1,523,413 in Q2 2019. Last week, the company published quarterly results which were better than expected, given the difficulties encountered by the leaders of the global cannabis market.
Veritas’ revenue increased by 165% compared to the same period of 2018, up to $1,215,810. Moreover, the gross profits in Q3 2019 increased by 468% compared to the same time last year.
The success enjoyed by Veritas comes from its strategy to expand its distribution network, which includes more than 5,000 retailers and partners. Veritas Farms’ high-quality CBD products are now sold by Winn-Dixie and BI-LO supermarkets. The Bi-Mart network of stores also closed a deal with Veritas, so Veritas CBD-based pet products will soon be available on their shelves.
Among the 9 product categories with over 60 SKUs that Veritas Farms produces and distributes are lotions, tinctures, balms, oils and vegan capsules. With a special focus on quality and transparency, Veritas offers customers the test reports run on its products by a third-party laboratory, available online.
It is clear that the cannabis industry faces some challenges and the forecasts for the big cannabis businesses are not very optimistic at the moment. Still, seasoned investors know that smaller caps are actually a preferable alternative in the growing cannabis market. Currently, Veritas Farms stands as a great example of an overlooked but promising cannabis stock. Investors can gain exposure to the cannabis market by investing in Veritas’ shares at a lower cost before they take off.
