Canopy Growth swings between gains and losses as an upgrade weighs against estimates of losses to be shared by its biggest investor
Cannabis stocks fell for a third straight day Monday, shrugging off gains in the broader market as the bearish sentiment that has hurt the sector all summer continued to weigh.
The ETFMG Alternative Harvest ETF MJ, -0.32% was down 1.1%, with 25 of its constituent stocks trading lower. The Horizons Marijuana Life Sciences ETF HMMJ, +0.00% was down 0.3%, with 32 of its 54 constituents declining.
Market leader Canopy Growth CGC, +0.60% WEED, +0.03% swung between small gains and losses, as an analyst upgrade weighed against an estimate of the losses that its biggest shareholder is expecting to share for the second quarter.
Seaport Global analyst Brett Hundley upgraded the stock to buy from neutral and said it looks attractive after a steep selloff during the summer months.
Canopy shares took a hit after its co-Chief Executive Bruce Linton was fired in early July at the bidding of its majority investor, Corona beer distributor Constellation Brands Inc. The drinks giant has invested $4 billion in Canopy and was frustrated that it continues to post losses and sell less cannabis than expected.
The stock is now down 7.4% in 2019, while the S&P 500 has gained about 14%.
“We fully understand and appreciate why cannabis has been part of the risk-off trade to this point; sustained red ink, regulatory uncertainty, compliance issues, and founder/management turnover are but just a few of the culprits,” Hundley wrote in a note to clients. “But we think that beta for cannabis, generally, and Canopy, specifically, needs to improve ahead.”
The cannabis sector could help provide safety for investors in the midst of the current trade dispute between the U.S. and China, he wrote, as it still offers a strong growth profile. The Canadian market is likely to enjoy some pricing power with the launch later this year of new form factors, including edibles, and Canopy is expected to benefit from its R&D, IP and partnerships.
“Finally, we know that large, long-only funds are doing the work on this name in order to get ready for their ability to invest in the space,” said the analyst. “Within the next two years, we think that the trillions of dollars under management in the U.S. will not only have access to cannabis as an investment, but may very well seek the industry out within what could be a volatile macro environment.”
Separately, Constellation STZ, +1.98% said it expects to book a net loss of $54.3 million from Canopy’s second-quarter losses, or $38.5 million on an adjusted basis including a tax benefit.
Namaste Technologies shares NXTTF, +12.57% N, +12.50% rose 27% after the Canadian cannabis telemedicine company said it has made its interim chief executive Meni Morim permanent CEO and added him to its board. Morim stepped in after the company fired its former CEO and its head of marketing in February after discovering irregularities related to the sale of Namaste’s U.S. subsidiary, Dollinger Enterprises U.S. Inc., in 2017, and subsequent transactions involving assets and companies in which the pair owned stakes. The stock is trading at 38 cents, meaning the gain is equal to just 8 cents.
Aphria shares APHA, -2.29% APHA, -3.65% fell 3.5% after filing a shelf prospectus on Friday to raise up to $500 million.
GW Pharmaceuticals PLC GWPH, -3.57%, the U.K company behind the only cannabis-based drug to win approval from the U.S. Food and Drug Administration, was down 4.6%. The stock fell after the U.K.’s National Institute for Health and Care Excellence published draft guidance that questioned the long-term efficacy of Epidiolex, a treatment for severe childhood epilepsy.
Leerink analysts said the guidance will now be out for consultation until Sept. 16 with the next appraisal expected Sept. 26.
“We understand that NICE has been taking a cautious approach for medicinal cannabis products, but we continue to see significant demand in the EU for Epidyolex (U.K. spelling) by both patients and physicians and assume GW will work this out eventually,” analysts led by Marc Goodman wrote in a note. “We currently have conservative sales estimates for Epidyolex in the EU overall, and we are not changing our estimates.” Leerink rates the stock at the equivalent of buy.
Sundial Growers shares SNDL, -1.14% fell 0.4%, after two houses launched coverage. CIBC assigned the stock a neutral rating and said execution risk “is particularly relevant at Sundial” given its short performance track record.
“Our concerns are a lack of differentiation and required execution in both North America and the U.K.,” said analysts led by John Zamparo.
Cowen struck a far more bullish tone, assigning the stock an outperform rating and designating it its Top Pick in cannabis. Sundial offers a “differentiated story led by its premium pricing model and small batch, low-cost production to yield enhanced profitability,” said analyst Vivien Azer.
Elsewhere in the sector, Cronos CRON, +1.23% CRON, +1.52% was down 0.6%, Aurora Cannabis ACB, +2.84% ACB, +2.13% was up 2.2%, OrganiGram Holdings’s stock OGI, -3.44% was down 2.8%. and Tilray TLRY, -0.32% was up 0.3%.
Hexo HEXO, +1.00% was down 0.6%. Aleafia ALEAF, +2.05% ALEF, +0.98% was down 1.3% and CannTrust CTST, -4.32% TRST, -4.44% was down 1.7%.