The Canadian cannabis stocks we’ve weeded out have enough cash on hand to sustain their operations for at least six quarters, meaning they could likely withstand a recession caused by coronavirus
SmallCapPower | March 12, 2020: Cannabis companies were facing a liquidity crisis even before the coronavirus pandemic, but are now in an even more dire situation. While cannabis supply chains (except for some vape parts and other accessories made in China) are likely to remain undisturbed, strong cash positions and low operating expenses will be key for cannabis companies to withstand any disruption faced by coronavirus. Today we have identified four Canadian cannabis stocks that can best withstand a bear market.
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*Share prices as at March 10, 2020, data obtained from S&P Capital IQ
Cronos Group Inc. (TSX:CRON) – $7.47
Cannabis
Cronos Group has two wholly-owned Canadian licensed producers: 1) Peace Naturals Project Inc., a global health and wellness platform; and 2) Original BC Ltd., a recreational adult-use Canadian licensed producer that is located in Okanagan Valley, BC. Cronos Group’s quarterly cash burn rate (cash flow from operations minus capex) is approximately ~$49 million per quarter. With a cash war chest (CRON has 10 years of cash on hand), the Company can wait patiently for the right time to spend the money on acquisitions or R&D that will be accretive to EPS.
- Market Cap: $2,605.7m
- YTD-Return: -25.1%
- Last Quarter Cash Balance: $1,992.5M
- Quarterly Cash Burn (CFO – Capex): $48.5M
- Quarters Cash on Hand: 41.1 quarters
Aphria Inc. (TSX:APHA) – $4.05
Cannabis
Aphria produces and sells medical and recreational cannabis-derived extracts in Canada. The Company currently has a 1.1M sq. ft Leamington greenhouse facility, called Aphria ONE, which yields ~100,000 kg per year. The Company also has the Double Diamond facility, boasting a cultivation space of 1.3M sq. ft and yielding 140,000 kg annually. Additionally, the Company has a premium cannabis brand called Broken Coast, produced in a 4,500 sq. ft facility in British Colombia that yields ~7,000 kg annually. While Aphria has ~$450M in convertible debt it is not due until 2024, giving the Company enough time to repay. APHA also announced recently a $100M equity investment from an unnamed investor.
- Market Cap: $1,081.3M
- YTD-Return: -40.3%
- Last Quarter Cash Balance: $497.7M
- Quarterly Cash Burn (CFO – Capex): $67.1
- Quarters Cash on Hand: 7.4 quarters
The Valens Company (TSXV:VLNS) – $3.00
Cannabis Extraction
The Valens Company is a pure-play cannabis extraction company with 425,000 kg of extraction capacity. Valens has signed extraction agreements with Organigram, Tilray, Canopy Growth, and HEXO Corp. Valens also has a strategic partnership with ThermoFisher Scientific, one of the world’s leading manufacturers of lab equipment, in addition to an ISO 17025 labs accreditation, which allows the Company to conduct standardized testing for over 400 different metals, pesticides, terpenes, residual solvents, microbials, and cannabinoid profiles.
- Market Cap: $377.9M
- YTD-Return: -16.6%
- Last Quarter Cash Balance: $58.7M
- Quarterly Cash Burn (CFO – Capex): $7.0M
- Quarters Cash on Hand: 8.3 quarters
Canopy Growth Corporation (TSX:WEED) – $19.45
Cannabis
Canopy Growth is the biggest cannabis company listed by market cap on the TSX and NYSE. The Company has the largest licensed production platform in Canada, with over 600,000 sq. ft. of production space. The Company has also secured the necessary agreements to export medicinal cannabis to Australia, Brazil, and Germany. While the quarterly cash burn is quite significant, newly-installed CEO by Constellations Brands – David Kline, is expected to rein in the spending, reduce expenses, and increase operating efficiencies; however it may be 8-12 quarters before the Company is profitable.
- Market Cap: $6,800.7M
- YTD-Return: -28.8%
- Last Quarter Cash Balance: $2,277.6M
- Quarterly Cash Burn (CFO – Capex): $359.6M
- Quarters Cash on Hand: 6.3 quarters
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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