What happened
The WallStreetBets forum on Reddit is getting more publicity this week, with reports on CNBC that the crowd behind recent short-squeeze moment names is now targeting the cannabis sector.
Trading in the sector is volatile again today, with stocks moving from 10 a.m. EST as follows:
So
Cannabis stocks in general have skyrocketed since the beginning of the year, in part due to politics and hopes for further progress towards federal legalization in the US, as well as growth in some of the underlying companies, as well as consolidation, where Tilray is set to Combine with Aphria (NASDAQ: APHA).
Today, stocks are pulling back from the outrageous gains on Wednesday as Tilray rose 50%, OrganiGram 37% and Sundial Growers nearly 80%. That volatility was likely heavily influenced by the retailers who focused on the sector. But there is also company news for investors to judge.
Image Source: Getty Images.
What now
With stock prices soaring in recent weeks, Sundial has taken the opportunity to raise capital, boosting the cash on its balance sheet. While this is especially useful because the company remains unprofitable, it does come at a cost to existing shareholders. The company’s market capitalization is up over 1,200% since the beginning of 2021, while the stock price itself is up about 720%. While both are huge numbers, the difference shows the dilution that existing shareholders endured in the process.
Tilray has had more fundamental reasons for its 2021 profit. This week the company announced a new distribution agreement in the UK that ties in with other recently announced European expansions. It also recently said it has exported its first shipment of medical cannabis to Spain and that it has received the first and only marketing authorization for medicinal cannabis products in Portugal. In addition to the business expansion, Tilray has plans to combine with Aphria to form the largest global cannabis company by sales. Aphria CEO Irwin Simon will lead the new combined company that will retain the Tilray name.
OrganiGram’s shares have also more than tripled since the beginning of the year. It’s the smallest of the three names with a market cap of just over $ 1 billion, and it’s still not profitable either. Last month, the company reported that in the first quarter of 2021, net revenues from Canadian adult recreational use increased by 30% compared to the same period last year, although total net revenues are down 23%.
The retail trader’s anger from yesterday seems to be waning today, but there are still some things the companies like, especially as legalization continues to grow in the U.S. But investors need to realize that dilution has occurred to Sundial Growers, and the struggle for profitability that everyone experiences. Investors should focus on the underlying business or spend money on the speculative portion of their portfolio.
This article represents the opinion of the writer (s), who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We are variegated! Questioning an investment thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.