The stock market had a big swing on Monday morning, originally jumping out to large gains due to progress in the trade talks between the U.S. and China but then reversing course and heading lower. By noon EST, the Dow Jones Industrial Average (DJINDICES:^DJI) was down 302 points to 25,724. The S&P 500 (SNPINDEX:^GSPC) dropped 25 points to 2,779, and the Nasdaq Composite (NASDAQINDEX:^IXIC) was lower by 66 points to 7,530.
Companies often have to make key decisions in the face of competitive pressures, and investors can't always quickly tell which moves will prove best. For the marijuana industry, one company's trash was another's treasure, while with Brazilian mining giant Vale (NYSE:VALE), a key executive move showed just how seriously the company is taking a recent disaster.
Dealing pot (companies)
Shares of Cronos Group (NASDAQ:CRON) fell by 4% after the cannabis company announced the completion of its sale of a strategic asset to industry rival Aurora Cannabis (NYSE:ACB). The deal involves Cronos' investment in privately held Whistler Medical Marijuana, in which it has a 19% stake. Under the deal's terms, Cronos will receive about 2.5 million shares of Aurora stock, worth roughly 24.6 million Canadian dollars. In addition, Cronos could get up to CA$7.6 million in additional Aurora stock if Whistler meets certain milestones.
For Aurora, whose shares were down 3%, the purchase gives the cannabis company access to Whistler's valuable brand portfolio, as well as a stock of dozens of strains and flower varieties that could help Aurora diversify its own holdings. Yet some Aurora shareholders have complained that the move is just the latest in a long series of stock-financed purchases that have led to substantial dilution for early investors in the marijuana stock. For Cronos, the stake in Aurora is inconsequential, representing only about 0.25% of Aurora's outstanding share count. Nevertheless, it'll be interesting to see if Aurora can make more of Whistler than Cronos did.
Check out the latest earnings call transcript for Cronos Group.
Vale bids its CEO farewell
Shares of Vale were down less, falling 0.5%. Yet the news that the miner of iron ore and other key commodities announced was far more negative.
Over the weekend, Vale removed Fabio Schvartsman from the role of chief executive officer. The move followed calls from government officials for the removal of Vale's executive team following the deadly breach of a tailings dam in January that killed dozens and left hundreds of others missing. According to some news reports, Schvartsman and other executives offered their resignations, and the board immediately accepted them.
Since the tragedy, Vale has come under increasing pressure. Investigations suggested that the mining company was aware that the dam faced a greater chance of breaking than usual, yet inspectors indicated that they were reluctant to raise safety concerns. In particular, alleged discussions between executives and lower-ranking employees that pointed to knowledge of the dam's deterioration were especially troubling.
For whatever reason, Vale seemed to hedge its bets, with Schvartsman apparently calling on the board to remove him on a temporary basis. That indicates the possibility that the CEO could return at some point -- perhaps on the assumption that the executive will eventually be exonerated. Based on the stock's plunge since the January accident, exoneration doesn't appear to be likely, and it could be months before any final conclusions about the events leading up to the dam breach become clear.