Why Aurora Cannabis, HEXO and Tilray Shares Just Crashed

What happened

Wednesday arrived with a wave of news for investors in the cannabis industry – little good news. In quick succession, the marijuana grower Cannabis Aurora (NYSE: ACB) first saw its price target increased, then announced a major share issue and sale, and then has obtained its target price drop (as well as its stock market quotation). Soon after, a rival cannabis company Tilray (NASDAQ: TLRY) has also been downgraded. And, as bad news continued to flood the industry, tiny HEXO (NYSE: HEXO) found it impossible to fight the tide.

Result: At 10 a.m. EST, all three stocks are down significantly – Hexo shares 4.4%, Tilray 9.6% and Aurora Cannabis, worst of all, a staggering loss of 20.1%.

Image source: Getty Images.

So what

Most of today’s news is about Aurora Cannabis, so let’s start with that one – and we’ll start on a happy note. Aurora Cannabis stock was crushed (along with most marijuana stocks) yesterday after reporting disappointing sales and a big net loss. On Wall Street, however, analysts were in a lenient mood and at least two major investment banks, Canaccord Genuity and CIBC Capital Markets, took the opportunity to raise their price targets for the stock (to $ 11 CA and CA $ 15, respectively).

This is, as I said, the good news. The bad news is that these analysts barely put their reputations on the line to defend Aurora when the company announced it would sell around 16.7 million new shares at $ 7.50 each in a bid to raise $ 125 million. new liquidity. Then this morning, Aurora increased the size of that share offering to 20 million shares to raise $ 150 million instead.

Stifel Nicolaus analysts reacted quickly by downgrading Aurora Cannabis stock to a sell-off, but with an improved price target of C $ 6.50 to account for the stock’s recent rise. Stifel explained, in a covered note on TheFly.com, that Aurora appears to be suffering from increased competition in Canada and its need for cash (Aurora burned $ 93 million in the last quarter) is becoming more urgent, that is. why the analyst is not. optimistic about the stock.

Stifel then turned his gun on Tilray, who, like Aurora, suffered a sales deficit in its last earnings report – and, like Aurora, lost money and burnt money. Stifel now thinks this one is a sell-off as well, reducing his price target on Tilray to $ 4.75 and again citing cash consumption as the main concern.

Now what

And HEXO? The good news here is that no one seems to have downgraded it (not today, at least). But the bad news is that the company is barely out of the woods, nor is it immune to the pessimism that is infecting the biggest players in cannabis.

The earnings news for the last quarter was just horrible, with HEXO losing $ 0.38 per share instead of the expected $ 0.03. Indeed, over the past year, HEXO has accumulated losses of $ 420 million – more than the company’s market capitalization. Free cash flow for the period stands at less than $ 152 million, and if this continues, investors should assume that liquidity will soon be as much of a concern for HEXO as it is for Aurora Cannabis and Tilray.

So what’s the bottom line for investors? They’ve already lost 60% of their investment in shares in Tilray and HEXO, and 80% in Aurora, in the past year – but things could get even worse. This is bad news for marijuana stocks, and I’m not at all convinced that even legalizing marijuana can save investors from their losses.