The HEXO share jumped 30% yesterday and today it falls pre-emptively by 21%. The value of the stock in the market (before the expected fall today) stands at 72.15 million dollars. At the height of the hype in cannabis stocks in 2019, the stock traded at a price of more than $440 per share.
The jump and crash come after Tillery,
TILRAY INC
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announced the purchase of the company for 56 million dollars, where for each share of HEXO the investors will receive 0.4352 of Tilray (ie about 1.25 dollars per share). According to the companies, the deal includes expected pro forma net sales of $215 million, and low cost distribution operations (ie synergy) for distribution across Canada. HEXO operates three breeding sites in Ontario and Quebec (Canada).
“The combined company is expected to strengthen Tilray’s existing Canadian position with a 12.9% pro-forma market share and a No. 1 market position in all major markets, and a leading share in most product categories,” Tilray said in a statement.
Increase in income – large value write-off due to the increase in interest rates
At the same time, Tilray also published results for its third fiscal quarter of 2023 when it reports revenues of $152.6 million (compared to $144 million in the previous quarter), and continuing to maintain a positive adjusted EBITDA for the 16th time in a row (at the level of $14 million) and expects that in every This year it will reach $63 million (mid-term), a 30% increase compared to last year, and that it “achieved major milestones in streamlining on the way to positive cash flow.” The company reports a savings of $22 million in operating costs, as part of a $30 million efficiency plan.
Excluding the change in exchange rates, Tilray would have reported an income of $154.2 million, a 2% increase compared to the corresponding fiscal third quarter. Meanwhile the company has another cash cushion of $408 million.
On the other hand, it recorded a reduction in non-cash net assets of $1.1 billion as a result of the rise in interest rates worldwide, but tries to reassure and says that “the reduction in non-cash net assets has no effect on the company’s compliance with the debt conditions, its cash flows or the available liquidity”. Tillray is still making a gross loss and reported a gross loss of $11.7 million. It posted an adjusted gross profit of $44.3 million.
The Tillray company may be much larger in terms of market capitalization than HEXO and is traded at a value of 1.7 billion dollars, but it too crashed after the great euphoria in the field. The stock is now trading at a price of $2.74 per share, when at its peak it was trading at a price of more than $300 per share and a market value of $24 billion, meaning that it too has lost 93% of its value.
The price of the transaction was closed at 56 million dollars, but in practice, to cover debts of more than 200 million dollars, Tyler will take it upon himself, which means that the actual price is about 250 million dollars.
Here is Tilray’s graph, for more details on the stock click here
Emerging market – great potential, but the question is who will survive
Cannabis is still a nascent market – a definitely growing market, which may still be at the beginning, but the problem is that many companies have sprung up, their revenues are increasing, which is of course good, but at the same time they have set up too many farms. This is a problematic recipe – too many expenses, both on the farms and on management and sales expenses. So when the market is euphoric it may be fine, you can raise money like this and sell dreams of growth, but the mood of the market changes at a certain point – and then comes the big fall in stocks. This does not mean that they will not be successful, it is likely that some of them will rise to the occasion and eventually reach profits, only along the way investors need to be careful.
The size of the global legal market reached 25.7 billion dollars in 2021 and 32 billion in 2022. The market is expected to expand, until 2030, at an annual growth rate (CAGR) of 25.5% and will reach 249 billion, and perhaps much more, meaning that the growth potential exists.
At the same time, the companies are in the process of reorganization, an attempt to become more efficient, reduce losses and improve in order to make a profit in the end. It is quite possible that after the major falls in the shares of the sector, opportunities can also be found. Another possible way to be exposed to the field, without taking all the risk of individual stocks, is to invest in the field through a basket fund, such as the basket fund
ADVISORSHARES PURE US CANNABIS ETF
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Here is what Wall Street commentator Shlomo Greenberg recently wrote:
And what do the analysts think?
Most of them are still in the ‘hold’ position on the stock. Out of 16 who reviewed Tilray in March, 12 recommend the hold. 4 more in a buy position. There are no analysts who recommend selling. In the next quarter they expect it to bring in 209 million dollars and for the whole year they expect revenues of 829 million dollars, a certain decrease of 3% compared to last year.