The Canada-listed cannabis stocks we’ve discovered have less than enough cash to last three quarters and may need to raise additional capital in the future
SmallCapPower | November 11, 2019: Canadian cultivators and US-based multi-state-operators (MSOs) continue to slide as we head into the second week of November. The Horizons Marijuana Life Sciences Index ETF (TSX:HMMJ) is down 11% over the past 30 days. Shares of most Canadian cultivators are now down 60% to 70% from their March highs, while MSOs are down 50% to 60%. Cannabis companies are likely to remain under pressure for the perceivable future, as financial results continue to disappoint, and there are no near-term industry catalysts that could give share prices a lift. Higher-margin Cannabis 2.0 products could reignite interest in the space, however material revenue from these products is not likely to hit cannabis companies’ financials until the second half of 2020. Until then, cannabis companies will likely have to reduce operating expenses, capital expenditures, and preserve cash until they become profitable. Today we have weeded out four Canada-listed cannabis stocks that may not weather the storm and could burn through all their cash, meaning that they may have to raise capital at unfavorable rates.
*Share price data as at November 7, 2019, data obtained from S&P Capital IQ
**Cash burn defined as Cash Flow from Operation (CFO) plus Capex
***Average of past three quarters CFO and Capex used to calculate quarterly cash burn
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The Green Organic Dutchman Holdings Ltd. (TSX:TGOD) – $0.92
Cannabis
The Green Organic Dutchman Holdings is a Canada-based cannabis producer with operations spanning from Ontario to Quebec. TGOD has already received the ACMPR cultivation and sales license but its two facilities are currently under construction. On October 24, 2019, the Financial Post reported that TGOD was not successful in attempting to sell its Ancaster, Ontario facility through a leaseback program. This follows an announcement from October 9, 2019, when the Company announced that it was unable to secure financing to complete construction at its facilities in Ancaster, Ontario and Valleyfield, Quebec. As of June 30, 2019, TGOD had ~$70M in cash on hand and ~$55M in restricted cash earmarked from capex. At its current level of cash burn (~$60M), TGOD has about 1-2 quarters to become cash-flow positive before it runs out of cash.
- Market Cap: $253.5M
- 5-Day Return: -18.6%
- 30-Day Return: -35.7%
- YTD-Return: -62.6%
- 30-Day Average Trading Volume: 3,638,560
- Last Quarter End: June 30, 2019
- Cash Balance: ~$70M
- Cash Flow from Operations: -$15.0M
- Capex: -$45.0M
- Quarterly Cash Burn: ~$60M
HEXO Corp. (TSX:HEXO) – $2.93
Cannabis
HEXO is a consumer-packaged goods and cannabis experience company. It currently operates 2.4M sq.ft of facilities in Ontario and Quebec. The Company utilizes a hub-and-spoke business strategy that involves partnerships with Fortune 500 companies. Through this strategy, HEXO brings its brand value, cannabinoid isolation technology, licensed infrastructure and regulatory capability to established companies, leveraging its distribution networks and capacity. On October 10, 2019, HEXO withdrew its F2020 revenue guidance, citing uncertainties in the cannabis market. On October 28, 2019, HEXO reported Q4/20 financial results, highlighted by revenue of $15.4M and an operating loss of $60.7M (was $2.0M during Q3). Increased OPEX was a result primarily of increased operating expenses at $46.9M (was $24.0M in Q3/19) and lower gross margins, due to FV adjustment of biological assets. As of July 31, 2019, HEXO had $152.0M in cash, plus on October 23, it announced a $70.0M private placement. With ~220.0M in available cash, HEXO has 2-3 quarters before it may need to raise again.
- Market Cap: $753.1M
- 5-Day Return: +4.9%
- 30-Day Return: -38.3%
- YTD-Return: -36.1%
- 30-Day Average Trading Volume: 3,047,020
- Last Quarter End: July 31, 2019
- Cash Balance: ~$152.0M
- Cash Flow from Operations: -$34.0M
- Capex: -$38.0M
- Quarterly Cash Burn: $72.0M
Harvest Health & Recreation Inc. (CSE:HARV) – $3.31
Cannabis
Harvest Health & Recreation is a multi-state operator (MSO) with rights to more than 210 facilities, of which ~130 are retail locations, and all have more than 1,700 employees across 18 states and territories. The Company believes that its vertical approach to design, construction, and implementation should result in low production costs. As of June 30, 2019, Harvest Health operated 16 dispensaries, compared with 13 during the quarter ended March 31, 2019. On August 15, 2019, Harvest reported Q2/19 financial results. Its net loss was $20.6M on revenue of $26.6M, and the adjusted EBITDA loss was 2.2M, a 47% decrease from the previous quarter. As of June 30, 2019, HARV had ~$90M in cash on hand, which is expected to last 1-2 quarters at current burn rates. On July 31, 2019, Harvest announced a $225M asset-backed financing plan, available in three $75M tranches, from Torian Capital Partners. However, this term sheet has not closed as of November 8, 2019.
- Market Cap: $950.7M
- 5-Day Return: -5.7%
- 30-Day Return: -1.8%
- YTD-Return: -54.0%
- 30-Day Average Trading Volume: 405,100
- Last Quarter End: June 30, 2019
- Cash Balance: $90.0M
- Cash Flow from Operations: -$21.0M
- Capex: -$31.0M
- Quarterly Cash Burn: $52.0M
Dixie Brands Inc. (CSE:DIXI.U) – $0.33
Cannabis
Dixie Brands designs, manufactures, and distributes marijuana-infused products. DBI focuses on segments of the value chain that include extraction, product development, manufacturing, branding and distribution and avoids the more capital-intensive segments, such as cultivation and retailing. The Company has over 100 products across more than 15 different product categories, representing the industry’s finest edibles, tinctures, topicals and connoisseur-grade extractions, as well as world-class CBD-infused wellness products (relaxation, immunity development, and pain management) and pet dietary supplements. As of June 30, 2019, DIXI had $2.3M of cash on hand, with a burn rate of $4.1M per quarter they had about one quarter of cash on hand. On September 23, 2019, Dixie announced it had extended it warrants, though the warrants have an exercise price of $1.32 per share.
- Market Cap: $40.9M
- 5-Day Return: -21.0%
- 30-Day Return: -32.9%
- YTD-Return: -57.8%
- 30-Day Average Trading Volume: 86,900
- Last Quarter End: June 30, 2019
- Cash Balance: $2.3M
- Cash Flow from Operations: -$4.0M
- Capex: -$0.1M
- Quarterly Cash Burn: $4.1M
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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