Aphria’s [APHA] share price has fizzled out since mid-February. On 9 February, the Ontario-based cannabis producer’s stock hit a high of $32.29 as Reddit forums hyped weed stocks, with Tilray [TLRY] and Canopy Growth’s [WEED] share prices sharply climbing on the same day.
Perhaps unsurprisingly, the Reddit bubble has burst and Aphria’s share price has dropped over 20% since then, leaving it trading at CA$22.90 (as of 9 March’s close).
Aphria’s share price movement is a reflection of the wider cannabis investment theme.
At the start of the year, cannabis topped our thematic ETF screener, but it has dropped dramatically since. Over the past month, the cannabis theme is down circa 31.38% and has dropped circa 10% over the last week (as of 9 March’s close).
31.38%
Price drop of the cannabis theme over the past week
However, there could still be plenty of upside left in the investment theme. Joe Biden’s victory in November’s US presidential election has reignited hopes of Federal level approval for cannabis, while Aphria will merge with Tilray to create an even bigger operation.
Why has the cannabis investment theme dropped?
The most obvious answer is that the current share prices represent a correction following February’s frenzied trading. This makes sense considering that, over a 12-month period, Aphria’s share price is up 453%, Tilray’s 67% and Canopy Growth Corp’s 74% (as of 9 March’s close). All three are also trading above their January levels, so what we are seeing could be less a collapse in the stocks and more a correction.
453%
Aphria’s share price growth over past 12 months
Yet even at their current levels, these stocks aren’t cheap. Aphria trades at a 12-month trailing price to earnings multiple of 58X, while Tilray has a $4bn market cap and just $280m in forecasted revenue for 2021. While Tilray’s revenues are expected to increase to $369m in 2022, it begs the question whether the current share price is justified.
Eric Volkman, writing on The Motley Fool, notes that cannabis companies remain “speculative investments” which will suffer in a market downturn compared to more established longer-term holdings.
“Weed has only been legalized/decriminalized on a piecemeal, state-by-state basis, and weed companies face many other challenges, including lack of access to basic financial services, price-dampening black market competition, etc. Even the most successful operators struggle to turn a profit and limit cash burn,” writes Volkman.
“Weed has only been legalized/decriminalized on a piecemeal, state-by-state basis, and weed companies face many other challenges, including lack of access to basic financial services, price-dampening black market competition, etc. Even the most successful operators struggle to turn a profit and limit cash burn” – Eric Volkman
Despite the challenges, Volkman believes that cannabis stocks have a “promising future”, and cites the upcoming merger of Tilray and Aphria as having the potential to create a “powerful company”.
Where next?
The first half of 2021 is unlikely to be make or break for the industry, but there are some milestones that will influence whether cannabis stocks can continue to grow. Should Biden go further than decriminalising marijuana at a federal level, then the US market will open up for companies like Aphria and the stocks would see movement accordingly.
Even if federal legalisation does not happen, more states are looking to relax recreational marijuana laws individually, in order to raise taxes. New York is one of the states considering such a move, which would open a huge market for cannabis firms.
For now, it looks as though the cannabis investment theme could be a slow burn, but one with the potential to fire back up.
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TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
TORONTO – Canada’s main stock index was little changed in late-morning trading as the financial sector fell, but energy and base metal stocks moved higher.
The S&P/TSX composite index was up 0.05 of a point at 24,224.95.
In New York, the Dow Jones industrial average was down 94.31 points at 42,417.69. The S&P 500 index was down 10.91 points at 5,781.13, while the Nasdaq composite was down 29.59 points at 18,262.03.
The Canadian dollar traded for 72.71 cents US compared with 73.05 cents US on Wednesday.
The November crude oil contract was up US$1.69 at US$74.93 per barrel and the November natural gas contract was up a penny at US$2.67 per mmBTU.
The December gold contract was up US$14.70 at US$2,640.70 an ounce and the December copper contract was up two cents at US$4.42 a pound.
This report by The Canadian Press was first published Oct. 10, 2024.
