A Canadian cannabis company was the sole bright spot in the sector on Wednesday, with most stocks falling as investors digested news of a possible U.S. regulatory ban on flavored e-cigarettes and questioned what it might mean more broadly for vaping, a popular delivery system for weed.
Tilray Inc. TLRY, +5.95% the first full-service cannabis company to list on Nasdaq, was up about 10%, continuing a winning streak that has seen its stock add more than 300% since going public in July. The stock broke the $100 threshold for the first time on Wednesday, shrugging off the latest attack from short seller Citron Research.
Citron, which has also criticized Canada-based Cronos Group Inc., reiterated its short call on Tilray stock Wednesday, in a note titled “Our Final Word on $TLRY before $50,” that discusses what analysts believe is a “ridiculous valuation discrepancy.” The Citron team expects that the company will need to conduct a secondary offering to raise additional capital and fund its expansion plans.
“Soon the stock market will have more options as the deepest cannabis IPO pipeline in history will detract capital from Tilray and traders will have new toys to play with,” the Citron analysts wrote. “These stock prices are equivalent to bitcoin mania – although it is even more ridiculous than bitcoin BTCUSD, +0.12% .”
Rival Canadian company Aurora Cannabis Inc. ACBFF, -0.92%ACB, -2.09% initially rose before surrendering gains, after announcing its latest expansion in the acquisition of Europe’s biggest hemp producer Agroprp UAB and sister company Borela UAB, a hemp distributor. Aurora paid 5.36 million euros for the two companies, which it said gives it “a very substantial supply of organic hemp seed products, as well as the capacity to process the raw material into products, and the international distribution channels to sell these.”
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The move comes just days after Aurora announced the acquisition of Uruguay-based ICC Labs Inc. for about $290 million. That deal will give it a foothold in Uruguay, the first country in the world to fully legalize marijuana for adult use, as well as in South America more broadly, a region with 420 million people. Canada will become the second country to fully legalize on Oct. 17.
GMP analyst Martin Landry said the ICC deal makes sense, given that South America is likely to become one of the lowest cost regions for cannabis production in the world.
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“The warm climate allows for very low cost greenhouse production, as well as the potential for multiple outdoor harvests per year,” Landry wrote in a note. “Additionally, labor costs (often one of the highest input costs for Canadian LPs) are low. These factors lead us to believe that Latin America could account for a meaningful amount of global dried cannabis production over the long-term.”
The rest of the sector was mostly sharply lower.
Canadian rival Valens GroWorks Corp. MYMSF, -21.03% was down 17%, bur remains up 130% in the last month. Cronos Group Inc. CRON, -7.25% was down 9%, Canopy Growth Corp. CGC, -2.03% was down 5%.
Among U.S.-based stocks, Nevada-based Cannabis Sativa Inc. CBDS, +2.82% popped 1% in midday trade after being lower all morning, while shares of Colorado-based farmer GrowGeneration Corp.GRWG, +0.00% fell 1%. Ianthus Capital Holdings Inc. ITHUF, -2.41% which owns cannabis cultivators, processors and dispensaries across the U.S., fell 3%.
The Horizons Marijuana Life Sciences Index ETF HMMJ, -2.80% which tracks more than 20 cannabis companies in North America and trades on the Toronto Stock Exchange, was down 3%.
The S&P 500 SPX, +0.00% has gained 8% in 2018, while the Dow Jones Industrial Average DJIA, +0.38% has gained 5%.
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