Buzz on the Bullboards: Cannabis Comeback Stocks?

It was the last thing that investors and analysts might have expected, but the cannabis sector got a breath of life last week from the unlikeliest of sources: the COVID-19 coronavirus.

Early on in the new year, the cannabis market showed a few signs of life, but the general trend continued downwards and companies realized the reality of the market. When the COVID-19 pandemic first started, cannabis stocks were among the hardest hit, as expected from a risky investment during an uncertain economic time.

So last week’s news that cannabis sales are up caught many by surprise. It turns out that having a large amount of the population stuck at home or unable to work has led to higher cannabis consumption, and cannabis stores have even been deemed “essential services” and remained open in regions undergoing a lockdown to contain the pandemic.

As one of the top investing sectors on Stockhouse, the cannabis Bullboards have been dissecting the companies that have started to recover, and those that the upswing seems to be passing by. But in a sector plagued by uncertainty and underdelivered promises, the biggest question remains: is this comeback the real deal?



Which company benefited the most from last week’s report? None other than cannabis Bullboard mainstay Aphria Inc. (TSX:APHA, Forum), which needed the boost after slipping a bit in recent months. The Canadian LP was the shining ray of positive performance in 2019 compared to the rest of the competition, but a less-than-stellar earnings report in January seemed to even the field, and APHA shares fell to $3.04 by Mar. 12.



After last week’s strong sector sales report that highlighted Aphria as potentially winning market share over competitors, the company’s stock began to rebound. By Mar. 24, APHA had quickly climbed to almost $4.00, outperforming the market and erasing some of the coronavirus-related losses. By many metrics, it seemed like Aphria was positioned to do well during the current downturn.

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For the APHA Bullboard, the good news comes at an opportune time. While some cannabis companies have struggled during the downturn and might need government assistance, Aphria looks to have righted the ship just in time. Of course, it’s still too soon to see how positive the final outcome will be, but as Stockhouse Member ProfCornelius said, Aphria looks to be on a good course if things remain the same.
While first place Aphria and other LP’s have been seeing share prices lift in the past week, the situation isn’t equal across the board. For Edmonton-based Aurora Cannabis Inc. (TSX:ACB, Forum), last week was only par for the course. ACB shares have fallen alongside the general market, most recently slipping from $1.86 on Mar. 4 to $1.01 on Mar. 17. When last week’s positive cannabis news gripped the market, ACB shares lagged behind, hovering around $1.05 on Mar. 24.



So why is Aurora lagging where other LP’s are gaining? Simply put, it was already in a poor position. The company’s February earnings report marked a significant and consecutive reduction in revenue, especially on the international front which was supposed to be Aurora’s differentiating factor. Add in a string of executive departures, including Founder and former CEO Terry Booth who then went on to sell 12 million shares of ACB on Mar. 16, and the outlook for Aurora is looking bleak.

But the positive sector-wide news definitely stemmed the flow of ACB, and the company’s Bullboard has been busy trying to figure out if there’s hope remaining for a full turnaround. Many point out that signs of increased sales across the board will bear fruit in the next quarter, and they’re likely right. However, the bigger picture problems plaguing Aurora need a fix, and Stockhouse Members like K2money 240 are almost at their limit of holding on for hope of good operating news.
Can a cannabis company successfully turn their business around after slipping? Another good modern example is HEXO Corp. (TSX:HEXO, Forum). Like Aurora above, HEXO’s shares have slipped to the point that the company might be de-listed from the NYSE, as things initially went from bad to worse in March. HEXO closed at $1.13 on Mar. 13 before falling to $0.52 on Mar. 18, but last week it climbed alongside the sector back to $0.97 on Mar. 24.



The recent large dip came as HEXO was late to file its Q2 earnings report to adjust for a late and large impairment charge. On Mar. 19, the company announced it filed amended management discussion and analysis for its previous fiscal year and latest fiscal quarter, clarifying the reasoning behind a lot of recent decisions intending to cut costs. Alongside the upswell that brought up the rest of the sector, the news seemed to have been received warmly, though more remains to be done for a full recovery.

Compared to ACB above, the difference on the HEXO Bullboard is that the company is more actively sharing news and updates, even if they happen to be negative. Given that HEXO had experienced the market-wide struggles a bit ahead of other LPs last year, there’s a mix of opinions on the board. On one hand, you have those that expect the changes to be too little too late. On the other, you those like Stockhouse Member quinlash that see the restructuring work starting to pay off.

Interestingly, recent positivity hasn’t been limited to the cannabis sector. Even as the number of COVID-19 cases soars in North America, Europe, and worldwide, the markets have become optimistic as governments are preparing trillions of dollars in stimulus and recovery. Whether or not the seemingly economy-first focus from countries like the US will bode well remains to be seen, but it has made investors expect the eventual market recovery to start sooner rather than later.



At this point, the coronavirus pandemic has affected all investors, and indeed the whole world. Our latest Investor Pulse Poll on the Stockhouse homepage takes this into consideration as we turn to investing strategies. Dropping markets and commodities is fear-inducing on one hand, and a golden opportunity on the other. What is your general strategy for the COVID-19 impacted present and near future?


(Click image to go to the poll)

Next week we’ll shift focus to other sectors with a better understanding of how governments will help out the economy, and what challenges still await. Stockhouse keeps you in the loop on the hottest small-cap stocks, keeping you ready for the shift to a recovery, and with it, a buyer’s market. For previous editions of Buzz on the Bullboards: click here.

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FULL DISCLOSURE: HEXO Corp. is a client of Stockhouse Publishing.