The bears come out in summer, and they've been feasting on pot stocks for weeks now. On Thursday, both the Canadian and American marijuana indexes broke 52-week lows, falling to $69.92 and $79.64 respectively. These are disappointing numbers for an industry once touted as the next gold rush market.
Unfortunately, the cannabis news hasn't been very pretty either. Scandals have dominated headlines since the start of July, coinciding with the surprise ousting of Bruce Linton from Canopy Growth Corporation (TSX:WEED) (NYSE:CGC). All month, major cannabis companies have been getting into trouble, and analysts point to the resulting bad press as the cause of the industry downturn.
“All of those hits are hurting momentum. It’s just been one thing after another," Rob Di Pisa, co-chair of the Cannabis Law Group at law firm Cole Schotz, told Market Watch recently.
It's no surprise, then, that a recent report claims that less than half of Canadian investors say they trust cannabis companies to do what is right.
Still, while some companies are stuck in the muck, others are working to rebuild trust, not only in their brands but in the industry as a whole. Investors should look to those companies to find faith in pot stocks, and hold their breaths a little longer for greater regulation to weed out the misbehavors.
A Run-Down of Recent Pot Stock Scandals
Bruce Linton lost his job at Canopy—a company he's credited with turning into a cannabis powerhouse—in large part due to poor returns. Shortly before he was removed, Canopy reported a net loss of $670 million CAD for the 2019 fiscal year and only $226.3 million in net revenue.
While terming the decision to lose Linton a scandal might not be fair to Canopy, which, at $46.18 on the TSX is doing better than most of its contemporaries, the reason behind it did seem to exemplify the nosedive in pot stocks that we're still experiencing.
About a week later, CannTrust Holdings (TSX:TRST) (NYSE:CTST) was busted by Health Canada for breaching regulations. The regulatory body discovered that CannTrust was cultivating cannabis in unlicensed rooms during the months that it was seeking a license for its greenhouse facility. The company's stock immediately fell off a cliff, dropping 50 percent in one day. Soon after it fell to a new low when news broke that CannTrust executives knew about the illegal cultivation.
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Not to be outdone, American cannabis company Curaleaf Holdings (CSE:CURA) (OTCQX:CURLF) got its share of bad press on July 23 when it was hit with a warning letter from the FDA. The Food and Drug Administration criticized Curaleaf for illegally selling CBD products online with claims that those products could treat things like Alzheimer's, withdrawal, and cancer.
Though the company responded saying it would fully comply with the FDA moving forward, that didn't stop the company's shares from falling 10 percent.
Cannabis Companies Building Consumer and Investor Trust
In contrast to the above companies, there are cannabis corporations still trying to make a good name in the industry. These are the companies that will put trust back in the market, and put pot stocks back where they were.
After experiencing its own fall from grace, executives at Namaste Technologies Inc (TSXV:N) (OTCQB:NXTTF) have been actively working to rebuild the brand.
"We're being compliant. We're focusing on what's right. We're not creating risk for our shareholders," explained Interim CEO Meni Morim in an interview last month. "We're creating value for our shareholders. There's a lot of cleaning up to do, and we're doing that."
The company's "head down, do the work" approach to the industry is bolstering Namaste's reputation among consumers. It's also resulting in profit, as Namaste stock jumped in mid-July after reporting healthy Q2 earnings.
Likewise, Zenabis Global Inc. (TSX:ZENA) (OTCPK:ZBISF) CEO Andrew Grieve likely put himself in investors' good books by declining to take an annual salary. Instead, he opted for 750,000 options exercisable at current market price. That way, if the company does well, he does well.
Additionally, Zenabis has been going the extra mile to ensure compliance with Health Canada. On July 9 it submitted its site evidence package for the first phase of its Langley facility, which, when complete, will be the second-largest cannabis greenhouse in the world.
Pot stocks and pot stock watchers can also cite OrganiGram Holdings (TSXV:OGI) (NASDAQ:OGI) as a reason to remain hopeful. Despite a slight decline in revenue last quarter, some industry analysts say the company is well-positioned to take the share of the market that CannTrust recently lost hold of. It will accomplish this by maintaining its profitable and drama-free corporate history.
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Featured image: DepositPhotos © SergeyNivens
