Marijuana stocks have been practically unstoppable since the year began. Through the first three months of the year, the Horizons Marijuana Life Sciences ETF, which holds around four dozen pot stocks of various weightings, had galloped higher by more than 50%.
However, March wasn't a particularly strong month for pot stocks. In fact, the aforementioned ETF, the first cannabis ETF to trade in Canada, wound up losing just over 2% (inclusive of a dividend distribution) in March. Although last month saw most pot stocks tread water, a few -- six, to be exact -- ventured into the deep end of the pool and sunk like a stone. Listed from the bottom up, here are the worst-performing pot stocks of March.
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Namaste Technologies: Down 37%
Namaste Technologies (NXTTF) has hit a trifecta of sorts, albeit not one it should be proud of. It was the worst-performing pot stock in 2017, led the industry in February as the worst-performing marijuana stock, then went back-to-back in March by once again leading all weed stocks to the downside with a loss of 37%.
Namaste, which sells vaporizers and operates a medical cannabis portal known as NamasteMD, has been cratering since October, when noted short-side firm Citron Research alleged fraud at the company. Although a special committee debunked some of Citron's claims, one allegation -- that then-CEO Sean Dollinger had sold assets to an insider without properly disclosing this sale -- proved true. Dollinger wound up being terminated with cause, with the company announcing that it would explore strategic initiatives, which may or may not include a sale of the company. Needless to say, it's been a rudderless ship ever since.
In March, despite announcing the company's entrance into the edibles market by taking a 49% stake in privately held Choklat, Namaste saw its stock crater further after two board members announced their departure. Plain and simple, Namaste is struggling with a crisis of confidence in management, and that's generally a situation for investors to avoid.
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22nd Century Group: Down 29%
Plant biotechnology company 22nd Century Group (XXII 10.18%) also had a miserable month, logging a 29% loss. The company's future could be bright with regard to developing technology capable of increasing or decreasing select cannabinoid production in crops. But the surprising resignation of Scott Gottlieb, head of the Food and Drug Administration, sent investors packing.
Gottlieb was a champion of health and patients' rights, and was arguably far more willing to take on big businesses, especially Big Tobacco, than his predecessors were. In particular, Gottlieb waged war on nicotine addiction and outlined a policy to reduce nicotine content in tobacco products to nonaddictive levels. 22nd Century Group has been developing a line of Very Low Nicotine Content (VLNC) cigarettes, which reduce nicotine in the bloodstream by 97%, to meet the FDA's apparent plans for nicotine products.
However, Gottlieb's departure throws the future of 22nd Century's VLNC cigarettes up in the air. His successor may not push for the same policies. And even if he or she does, it's unclear if consumers will actually buy a VLNC product given that nicotine provides the buzz that smokers crave. For the time being, 22nd Century Group looks to be off-limits.
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Insys Therapeutics: Down 27%
Now, Insys Therapeutics (INSY) is a company that should be no stranger to a list of worst-performing stocks. Insys has been a train wreck for years following allegations that it had bribed physicians to prescribe its fentanyl-based sublingual spray known as Subsys for off-label use. But the problems were magnified when the company's founder, John Kapoor, and multiple executives were arrested. Sales of Subsys, which once hit $330 million for the full year in 2015, fell to just $78.8 million in 2018.
Syndros, the company's dronabinol-based oral solution for the treatment of chemotherapy-induced nausea and vomiting, as well as anorexia associated with AIDS, has also been a disappointment. Dronabinol is a synthetic form of tetrahydrocannabinol (THC), the cannabinoid that gets a user high, and Syndros is how Insys gets its association with the pot industry. Once expected to top $200 million in peak sales, Syndros brought in only $3.3 million in its first full year of sales in 2018.
And, just to make matters worse, the company's auditor of its full-year operating results placed a going-concern warning in its filing with the Securities and Exchange Commission. In other words, Insys may not have enough capital to keep the lights on for the next 12 months. Avoid! Avoid! Avoid, Insys!
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Aleafia Health: Down 25%
One of the more confusing moves lower for the month was the 25% loss registered by Aleafia Health (ALEAF 10.22%).
On March 14, Aleafia announced that it had closed on its acquisition of Emblem, which was an all-stock purchase. The combination of the two companies brings together roughly 40 health clinics that have served about 60,000 Canadian patients to date, as well as a lot of in-house grown cannabis. When fully operational, Aleafia Health aims to peak at 98,000 kilos a year of production, with Emblem adding 40,000 kilos annually. At 138,000 combined kilos, the new Aleafia Health looks like a top-seven producer.
So, why the downside? Part of the reason could be that Aleafia used its stock as financing for the deal, thereby increasing its outstanding share count and making it that much tougher to generate a meaningful per-share profit.
Additionally, the company's low share price ($1.42) would potentially make it difficult to uplist to the Nasdaq, which requires a $1 minimum share price. A reverse split would do the trick, but reverse splits aren't typically viewed positively by investors. Thus, Aleafia Health looks to be stuck on the over-the-counter exchange for the time being.
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Canopy Rivers: Down 20%
Another sort of head-scratcher is Canopy Rivers (CNPO.F 3.55%). The cannabis investment company that was spun off from Canopy Growth in 2018 lost 20% in March, but there's not a lot in the way of bad news to suggest a reason.
In March:
- Canopy Rivers cheered Canopy Growth securing a cultivation license for its Fredericton, New Brunswick, facility.
- LeafLink and Canopy Rivers announced a new venture to work on a global business-to-business supply chain platform for the cannabis space.
- The company cheered portfolio investment Headset landing a strategic alliance with Nielsen Holdings.
Perhaps the only reasonable explanation here is profit-taking. Canopy Rivers was the leading gainer in January, logging a 94% increase to pace all pot stocks. Since then, the share price has pulled back considerably, possibly signaling that investors are content to take their gains and wait for the company to generate significant per-share profits.
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Liberty Health Sciences: Down 20%
Rounding out the worst of the worst in March is vertically integrated dispensary operator Liberty Health Sciences (LHSIF), which lost 20% as well.
Liberty Health holds one of just over one dozen medical-marijuana operations licenses in Florida, which means it has a relatively known number of competitors in the state. Recently, it announced its intent to open its 12th store in Gainesville. With a generally older population, Florida represents the perfect market for medical marijuana growers and dispensaries.
However, the medical marijuana market has been filling up fast in Florida, with MedMen set to enter the state, Trulieve Cannabis opening more than two dozen stores, Curaleaf Holdings with 23 of its own stores in the state, and numerous other big chains looking to the Sunshine State for profits.
Perhaps the biggest issue is that a short-seller report from December is still a dark cloud over Liberty Health Sciences. The report from Hindenburg Research alleged that Liberty Health overpaid for assets, and that conflicts of interest in certain deals weren't disclosed. A third-party committee found in February that these short-seller allegations weren't true. But, as with Namaste, the damage to management's reputation is tough to repair and will take time.
