December 28th, 2021 | 07:10 CET
Upcoming hydrogen and cannabis boom - Nel ASA, Ayurcann, Canopy Growth
Table of contents:
Canopy Growth - Analysts disappointed
During the recent bull market, one of the standout stocks was the Canadian medical cannabis leader Canopy Growth. With a stock market value of over USD 20 billion at its peak, the Company was one of the most highly capitalized in the sector. Since then, however, the stock price has lost around 80% to USD 9.72. From a chart-technical side still, no all-clear can be given. Various analysts are only partially enthusiastic about the former stock market star.
Thus Bank of America downgraded the Company from Smith Falls in Ontario from "neutral" to "underperform". The analysts also lowered the price target from CAD 19 to currently CAD 10. The downgrade comes despite the long-term prospects in the global cannabis industry, the analysts argue, pointing to possible federal legalization in the US and changing attitudes towards cannabis use. In addition to mixed performance on KPIs, Canopy Growth is struggling with a changing Canadian market "with new entrants capturing market share and changing consumer tastes, weak industry growth despite new store openings, and limited profitability visibility," the analysts write.
Earlier, experts at Piper Sandler downgraded the securities from "neutral" to "underweight" and lowered the price target from CAD 11 to currently CAD 7. As a reason, the analysts stated, among other things, that Canopy is losing share in the Canadian market and that measured retail sales in the USA have fallen by around 30% since August.
Ayurcann - Feared by established players
One of these new entrants to the market that is striking fear into the hearts of established competitors is the extraction company Ayurcann Holdings - like Canopy Growth, also based in Ontario in Canada, and specializing in the processing of cannabis and hemp to produce oils and various derivatives. With a market capitalization of EUR 15.01 million, Ayurcann is still in the early stages of its development, but its growth is enormous.
The third consecutive quarter of positive operating results, third-quarter figures confirm the upward trend. Ayurcann reported net sales of CAD 1.9 million for the three months ended Sept. 30, 2021, compared with CAD 0.8 million for the three months ended Sept. 30, 2020 - an increase of 137% YOY. Operating income was CAD 931,000, up more than six-fold from the same period last year, and gross margin was a substantial 49%.
The Canadians, who handle production on a white label basis for customers worldwide, such as Green Bee, Her Highness from the US and Innocan Pharma from Israel, currently offer 40 products ranging from creams to vape pens. At the 2021 Grow Up Awards Gala in Niagara Falls, Ayurcann recently received the Extraction Facility of the Year award and Contract Processing Facility of the Year.
The facility was recently expanded, increasing extraction capacity to up to 300,000 kg of input biomass and 2 to 3 million cannabis 2.0 and 3.0 products filled and packaged.
Nel ASA - Two in one stroke
The hydrogen sector has also been stuck in a deep correction this year. Norwegian market leader Nel ASA, which specializes in solutions for hydrogen production from electrical energy and its storage and distribution, lost more than 50% of its stock market value since its highs. Currently, the Scandinavians are struggling to find a bottom. After a successful test of the support at EUR 1.40, the share price went up again due to positive news. If the resistance at EUR 1.60 is broken, there should be further upside potential to EUR 1.80 initially.
Shortly before Christmas Eve, the Company announced two orders. Firstly, an order from a new customer in Europe with a volume of around EUR 3 million to produce an alkaline electrolysis system was announced. Earlier, the subsidiary Nel Hydrogen Fueling announced that an undisclosed customer had placed an order to produce several hydrogen modules for a total value of about USD 6 million for the years 2022 and 2023.
Both hydrogen and cannabis stocks are still stuck in correction. However, the growth lights are green for both sectors going forward. While Canopy Growth is showing weakness, Ayurcann is fully on track for growth. Nel ASA is still ambitiously valued.
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