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September 20th, 2023 | 08:25 CEST

Canopy Growth, Cantourage Group, Aurora Cannabis - Will the price fireworks come after legalization?

  • Cannabis
Photo credits: pixabay.com

For a long time, there was little reason for cannabis investors to rejoice. However, since Bloomberg reported that the US Department of Health and Human Services has asked the DEA to downgrade cannabis from Schedule 1 to Schedule 3, hopes for legalization are reviving. This downgrade would mean that cannabis would no longer be on par with heroin or other hard drugs. Democrats also want to give businesses in this sector legal access to bank accounts. In Germany, the traffic lights have approved Health Minister Lauterbach's plans to legalize cannabis. We, therefore, look at three companies that are betting on cannabis.

time to read: 4 minutes | Author: Armin Schulz
ISIN: CANOPY GROWTH | CA1380351009 , CANTOURAGE GROUP SE | DE000A3DSV01 , AURORA CANNABIS | CA05156X8843

Table of contents:


    Philip Schetter, CEO, Cantourage Group SE
    "[...] We are a producer and distributor of medicinal products and thus cover a crucial step in the value chain, especially within the cannabis industry. [...]" Philip Schetter, CEO, Cantourage Group SE

    Full interview

     

    Canopy Growth - Losses and high debt

    Canadian cannabis company Canopy Growth was the most popular stock a few years ago, but after the 2018 high that took the stock to USD 59.25, the stock fell apart. In July this year, the low was marked at USD 0.364. Due to the report mentioned in the introduction, the stock shot back up to USD 1.92. However, legalization is still a long way off, and the Company is in financial trouble. Despite cost-cutting programs, Canopy Growth reported an EBITDA loss of USD 57.8 million on revenues of USD 108.7 million. Cannabis revenues were down 26% YOY, with only the BioSteel beverage brand growing 137%.

    Sounds good, but BioSteel is responsible for about 60% of the EBITDA loss. As a result, Canopy's management stopped funding the subsidiary on September 14, forcing it to file for bankruptcy. Now, the assets are to be sold to improve Canopy's financial situation. Already in August, the Company had divested itself of the Hershey Drive plant for CAD 53 million. Since April, the group has sold assets worth CAD 155 million to repay its loans.

    But all this is not enough. On September 18, it was announced that the Company had offered an additional 22.92 million shares at USD 1.09 via a private placement to raise about USD 25 million. However, investors could purchase additional units at USD 1.09. The Company would then receive USD 50 million. In addition, one receives a warrant with a strike price of USD 1.35 that is valid for 5 years. Debt was over USD 1 billion at the end of the last quarter. Refinancing could be difficult in the long term unless cannabis is quickly legalized in the US. The stock is now trading back at USD 1.13, above the private placement price.

    Cantourage Group - Telecan° platform launched

    The medical cannabis industry in Germany has been growing since its legalization in 2017, with Cantourage Group (Cantourage) standing out as an innovative and fast-growing company. The Company imports cannabis from global partners and manufactures medical products in Germany for distribution in the EU and UK. In doing so, they have a network of over 60 cultivation partners in 18 countries, allowing them to adapt to market demands quickly. Their "asset-light" strategy eliminates the need for expensive cultivation facilities. The German medical cannabis market is dominated by dried flower and cannabinoid-based products. Cantourage offers a diversified portfolio of cannabis flower products that address different patient needs.

    Their "multi-brand" strategy allows them to offer products at different price points. They also work with production partners under a revenue-sharing model. In August, SUMO Cannabis was added as another major producer of high-value flowers. Since September 1, the Telecanº platform has been online, connecting patients with physicians for personalized therapy. At the same time, it improves patient knowledge and supports Cantourage medical professionals in various aspects of therapy. Especially in chronic diseases, cannabis can improve patients' quality of life.

    The European market for medical cannabis is already well established, with Germany, Poland and the United Kingdom leading the way. Growing annual demand is expected to boost European sales to 2.6 billion by 2025. In addition to the good prospects, the Company also impresses with its figures. In 2022, it reported sales of EUR 14.1 million, albeit with a negative EBITDA of EUR 2.4 million. The first half of 2023 shows promising results, with sales of EUR 11.1 million and a positive EBITDA of EUR 0.2 million. The founders of the Company hold more than 70% of the shares. Currently, the share is quoted at EUR 9.76. Positive news regarding legalization keeps the stock jumping.

    Aurora Cannabis - TASTY'S as a new brand

    Aurora Cannabis is also based in Canada and, like its competitor Canopy Growth, has its sights set on the North American market. The main difference is the debt, which is nowhere near as high as Canopy's. Still, the Company is burning money. On August 10, the Company released its latest quarterly report and saw net revenue increase from CAD 50.1 million to CAD 75.1 million YOY. The increase was primarily due to medical cannabis sales and the plant propagation business. Adjusted gross profit was CAD 32.6 million, representing a consolidated adjusted gross margin of 44%.

    This fell by 6%. Management is targeting positive free cash flow by the end of the year and is looking to cut another CAD 40 million in costs. The numbers read well at first glance, but cash on hand has shrunk from nearly CAD 235 million to about CAD 158 million in one quarter. However, the Company has also repeatedly bought back convertible bonds. In addition, new shares were repeatedly issued, thus significantly diluting existing shareholders. Growth companies are suffering from the rise in interest rates as refinancing has now become much more expensive.

    It will be interesting to see whether the new brand TASTY'S will convince the Canadian market. The range includes 50% THC pre-rolled joints and 1,000mg vapes. According to the Company, the brand should convince with taste, effect and price. The launch took place on September 19 at one of the most important cannabis trade shows, Hall of Flowers. The news has caused the stock to jump significantly and is currently trading around USD 0.90 on the NASDAQ. If you want to bet on cannabis in North America, Aurora is currently preferable to Canopy.


    While cannabis companies in North America are suffering and struggling to survive, things are looking much better for Cantourage Group from Germany. The approach of not growing their own cannabis saves costs and has already brought the Company into the profit zone. Canopy Growth does not have the best prospects due to high debt. The only thing that will help here is rapid legalization in the US. Then, all stocks from this sector would skyrocket. Aurora Cannabis seems in an even better financial position than Canopy. The new brand could raise new hopes.


    Conflict of interest

    Pursuant to §85 of the German Securities Trading Act (WpHG), we point out that Apaton Finance GmbH as well as partners, authors or employees of Apaton Finance GmbH (hereinafter referred to as "Relevant Persons") may hold shares or other financial instruments of the aforementioned companies in the future or may bet on rising or falling prices and thus a conflict of interest may arise in the future. The Relevant Persons reserve the right to buy or sell shares or other financial instruments of the Company at any time (hereinafter each a "Transaction"). Transactions may, under certain circumstances, influence the respective price of the shares or other financial instruments of the Company.

    In addition, Apaton Finance GmbH is active in the context of the preparation and publication of the reporting in paid contractual relationships.

    For this reason, there is a concrete conflict of interest.

    The above information on existing conflicts of interest applies to all types and forms of publication used by Apaton Finance GmbH for publications on companies.

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    Der Autor

    Armin Schulz

    Born in Mönchengladbach, he studied business administration in the Netherlands. In the course of his studies he came into contact with the stock exchange for the first time. He has more than 25 years of experience in stock market business.

    About the author



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