What happened
Shares of Neptune Wellness Solutions (NEPT -8.82%), an operator of licensed cannabis refineries in Canada, gave back some of Friday's gains. After taking a weekend to think about a deal with Tilray (TLRY), a Canadian licensed producer, Neptune investors aren't as excited anymore. This led the stock 13.6% lower during midday trading before a small recovery narrowed the loss to 9.5% on Monday.
So what
Neptune stock popped at the end of last week in response to a multiyear contract with Tilray, which will deliver at least 125,000 kilograms of cannabis biomass for processing over the next three years.
Image source: Getty Images.
The extra business comes at a good time for the cannabis extract specialist. Neptune's operations lost CA$10.5 million ($7.9 million) during the last nine months of 2018, and the company finished 2018 with just CA$15.6 million in cash on the balance sheet.
Now what
The Tilray deal is definitely a positive, but it probably isn't going to drive Neptune to profitability before that cash cushion is gone. Neptune expects Tilray to send around 25,000 kilograms in the first year beginning in September, and the remaining 100,000 kilograms will be split over the next two years.
It's hard to tell what kind of profit margin Neptune can expect from processing Tilray's hemp and cannabis, but it probably won't be wide enough to carry this company to profitability. It's been a long time since Neptune visited the equity tap, and investors should brace for a dilutive share offering in the near future.
