Along with nearly all cannabis stocks, Canopy Growth (NYSE:CGC), Aurora Cannabis (NYSE:ACB), and Aphria (NYSE:APHA) cratered last month. Stocks of these three top Canadian growers plunged 20.3%, 16.4%, and 13.6%, respectively, according to data from S&P Global Market Intelligence.
(A cannabis player that bucked May's downtrend is EnWave, which supplies equipment for dehydrating organic materials, including marijuana and hemp. You can read about EnWave here.)
We can attribute the poor performances of Canopy, Aurora, and Aphria stocks last month largely to general weakness in the market. May was a terrible month for stocks, with the S&P 500, including dividends, falling 6.4%.
As is rather typical for such pullbacks, high-flying, highly valued stocks were hit the hardest -- and no sector has recently experienced stock prices and valuations running up faster than the cannabis space. Many growth stocks in the tech realm also experienced big drops.
As I recently wrote:
The main catalyst for May's market sell-off was escalating global trade tensions. Along with moving closer to a trade war with China, the U.S. could now be heading down that same path with Mexico. On May 31, President Trump threatened to impose a 5% tariff on [imports from Mexico] until our neighbor to the south stems the flow of [migrants] crossing its border to the United States.
(Update: June has seen an easing of trade tensions, with Trump announcing on Friday that he was suspending the tariffs on Mexican goods after Mexico agreed to strengthen immigration enforcement.)
Aphria stock didn't lose as much ground during May as Canopy and Aurora, since it received some love from Wall Street. On May 24, Aphria shares soared 14.7% following a Jefferies analyst initiating coverage with a buy rating and a price target of 15 Canadian dollars ($11.10), or about a 74% premium over the stock's closing price on the previous day. (Shares closed at $7.27 on Friday.) The analyst believes the company deserves a higher value given its strategic positioning in the cannabis market.
Aphria stock's valuation relative to its peers has suffered within the past half-year due to a scandal. Shares plummeted last December after allegations surfaced surrounding the company's Latin American acquisition, LATAM Holdings. Earlier this year, an independent committee found that some board members had conflicts of interests in the acquisition that they didn't fully disclose. The incident's fallout included CEO Vic Neufeld and company co-founder Cole Cacciavillani transitioning out of their executive roles. Irwin Simon -- previously CEO of organic-food maker Hain Celestial -- is acting as Aphria's interim CEO.
Last week -- the first week of June -- was a mixed bag for the cannabis sector. Aphria's 10.3% gain was more than double the S&P 500's return, Canopy's 4.8% rise was in the same ballpark as that of the broader market, while Aurora's 0.7% gain trailed the market.
Aphria stock's pop on June 7 likely grabs your attention. The shares' 8.4% that day can probably be attributed at least in part to the company's announcement that it had entered into an agreement with San Francisco-based PAX Labs, which makes premium vaporization devices. Pending Canada legalizing the sale of cannabis extracts for vaporization -- which is expected to occur later this year -- Aphria will introduce premium cannabis extracts in pods designed for use with PAX's Era device. It plans to produce pods for both recreational and medical use.
Aurora stock's downward move on June 6 might also stand out to you because it was in the opposite direction of the movements of the other two cannabis stocks and the S&P 500. On that date, shares fell 2.6% after a Stifel analyst initiated coverage of the stock with a hold rating and a CA$10 ($7.47) price target. (Shares closed at $7.64 on Friday.) He cited several reasons for his cautiousness, including his belief that Aurora's international medical-use growth opportunities are limited beyond Canada and Germany, and the company's lack of a definitive strategy for entering the U.S. market.
Moving our time-period lens out, here's a look at how shares of Canopy Growth, Aurora Cannabis, and Aphria have performed in 2019 through Friday.
Investors in Canopy don't have long to wait for material news, as the company is slated to release its fourth-quarter and full-year results for fiscal 2019 after the market closes on Thursday, June 20. The company's earnings call is scheduled for the following day at 8:30 a.m. EDT.
Because it is the largest stock in the cannabis sector by market cap, Canopy's quarterly results and management's outlook should not only move its stock, but also impact the entire sector, particularly the other Canadian cannabis growers, including Aurora, Tilray, Cronos, and Aphria.