Please ensure Javascript is enabled for purposes of website accessibility

Marijuana Massacre: These 35 Pot Stocks Fell at Least 10% in May

By Sean Williams – Jun 5, 2019 at 8:21AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The green rush went up in smoke in May, but volatility is to be expected.

Throughout most of 2019, marijuana stocks have been virtually unstoppable. In the first quarter alone, the first-ever cannabis exchange-traded fund, the Horizons Marijuana Life Sciences ETF, advanced by more than 50%, with 14 prominent pot stocks gaining at least 70% through March. Although gains slowed a bit in April, most cannabis stocks were still handily outperforming the broader market entering May.

However, pot stock investors' returns began going up in smoke last month. The Horizons Marijuana Life Sciences ETF shed more than 13% of its value. What's more, of the 56 marijuana stocks that I regularly follow, 47 of them ended the month lower, with just four of the nine gainers ending the month with an increase of at least 6%.

A visibly worried investor looking at a plunging stock chart on his computer monitor.

Image source: Getty Images.

Most pot stocks fell by a double-digit percentage in May

On the other end of the spectrum, 35 of the 47 decliners ended the month lower by a double-digit percentage. While volatility is expected given how nascent the cannabis industry is, the breadth of this ransacking probably still surprised a lot of investors. Here's a compendium of all 35 pot stocks that were taken to the woodshed in May, along with some notable trends that follow the (long) list.

  • Insys Therapeutics: Down 82%
  • TILT Holdings: Down 36%
  • Charlotte's Web Holdings (CWBHF -3.64%): Down 32%
  • Tilray (TLRY): Down 26%
  • Harvest Health & Recreation: Down 23%
  • Green Growth Brands: Down 23%
  • The Green Organic Dutchman: Down 22%
  • CannTrust Holdings (CNTTQ): Down 22%
  • KushCo Holdings: Down 22%
  • VIVO Cannabis: Down 22%
  • MedMen Enterprises (MMNFF 4.06%): Down 20%
  • Canopy Growth (CGC 0.69%): Down 20%
  • Supreme Cannabis Company: Down 20%
  • FSD Pharma: Down 19%
  • Flower One Holdings: Down 19%
  • Cronos Group: Down 18%
  • Acreage Holdings: Down 18%
  • HEXO: Down 18%
  • Green Thumb Industries: Down 18%
  • iAnthus Capital Holdings: Down 17%
  • Planet 13 Holdings: Down 17%
  • CV Sciences: Down 17%
  • Constellation Brands: Down 17%
  • Curaleaf Holdings: Down 17%
  • Aurora Cannabis (ACB -1.32%): Down 16%
  • MariMed: Down 15%
  • Trulieve Cannabis (TCNNF -0.73%): Down 14%
  • Cresco Labs: Down 14%
  • Valens GroWorks: Down 14%
  • Aphria: Down 13%
  • Emerald Health Therapeutics: Down 13%
  • Origin House: Down 13%
  • 22nd Century Group: Down 13%
  • Zenabis Global: Down 12%
  • Greenlane Holdings: Down 10%

In other words, it pretty much didn't matter where you were parked within the cannabis industry in May. If you owned pot stocks, you probably lost money. But there were certainly some interesting trends among weed companies that lost more than others.

An up-close view of flowering cannabis plants growing indoors.

Image source: Getty Images.

Canadian growers were taken to the woodshed

For example, if we use the 13% decline in the Horizons Marijuana Life Sciences ETF as our baseline, you'll note that eight out of 11 of Canada's growers projected to top 100,000 kilos in peak annual output met or surpassed this loss for the month, with the exceptions being Zenabis Global (minus 12%), Aleafia Health (minus 5%), and OrganiGram Holdings (minus 3%).

It's really not all that surprising that some of the bigger losses this past month were for companies like Aurora Cannabis, Canopy Growth, and Tilray, all of which have affirmed that Canada's supply chain issues are hurting their top-and-bottom-line operating results.

For those unfamiliar, regulatory agency Health Canada has been bogged down by more than 800 cultivation, processing, and sale license applications (as of January), with compliant packaging solutions shortages also playing a role. Health Canada aims to remedy this backlog by requiring prospective growers to have completed their cultivation facilities prior to submitting their licensing applications. This should push underfunded growers out of the way and allow cash-rich growers like Aurora Cannabis, Canopy Growth, and Tilray, to rise the ranks in terms of getting licensed to grow, process, distribute, and/or sell cannabis.

Clearly, though, Wall Street and investors are aware that fixing Canada's marijuana supply chain isn't going to happen overnight. As a result, earnings estimates for both Aurora Cannabis and Canopy Growth have been precipitously declining, with Tilray's rising modestly in recent weeks, but still down as a whole for 2020 from where the Street's consensus stood about three or four months ago.

A large dispensary store sign with a cannabis leaf and the word dispensary written underneath it.

Image source: Getty Images.

U.S. multistate growers' performance was dictated by their bottom lines

The beating that marijuana stocks took in May wasn't just confined to Canada. U.S.-focused multistate dispensary operators also took it on the chin, with those vertically integrated companies that are furthest from profitability performing notably worse than those that have already achieved recurring profitability.

For example, Florida-focused Trulieve Cannabis more or less was par for the course with a decline of 14% in May. This is a company that reported record quarterly sales last week and that outlined a rapid growth trajectory through 2020, including increased profitability. Sales in the recently ended first quarter nearly tripled to $44.5 million, with adjusted EBITDA of $19 million, a 211% year-over-year improvement. Trulieve, which has 27 open dispensaries in Florida and has expanded into California, Massachusetts, and Connecticut, expects sales to rise from $102.8 million in 2018 to between $220 million and $240 million in 2019, and $380 million to $400 million in 2020. 

Comparatively, MedMen Enterprises reported another disappointing quarter that featured a $53.3 million loss from operations, bringing its nine-month operating loss total for fiscal 2019 to $178.4 million. Yes, MedMen's sales in newly acquired states rose considerably, but the company's same-store sequential sales growth for its California locations slowed to a meager 5% from the second quarter. Wall Street punished unprofitable vertically integrated dispensary operators in May more so than profitable multistate operators. 

A cannabis leaf lying atop a neat stack of hundred dollar bills.

Image source: Getty Images.

Shelf offerings were hit hard in May

Lastly, any pot stocks that announced a shelf offering in May were beaten to a pulp.

Even though there are new avenues to nondilutive forms of financing, most cannabis stocks find selling stock or debentures an easy means of raising capital. After announcing a 700 million Canadian dollar shelf offering in early March, CannTrust priced a little over 36 million shares at $5.50 in May -- a price that was almost 15% below its previous day's close. Although CannTrust had little issue raising $170 million (that's U.S.) in gross proceeds, before the underwriters' allotment, and this cash is pivotal to its outdoor expansion, investors' patience with capital raises in the pot industry is thinning.

Even marijuana stocks that didn't raise capital via a shelf offering were hit. Charlotte's Web Holdings announced a shelf offering that saw 8.05 million shares held by investors sold at CA$20, a roughly 25% discount to where the company had been trading prior to the shelf offering announcement. Again, even though this wasn't a capital raise for hemp-oil and hemp-derived cannabidiol manufacturer and distributor Charlotte's Web, it was nonetheless punished for having its investors head for the exit at a price that was well below where it had been trading.

It's unclear where pot stocks will head next, but volatility is expected to be the name of the game for the time being.

Sean Williams owns shares of CannTrust Holdings Inc and KushCo Holdings. The Motley Fool recommends CannTrust Holdings Inc, Constellation Brands, HEXO., KushCo Holdings, OrganiGram Holdings, and Origin House. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.