What happened
Canadian pot stocks simply can't catch a break. After a tough year that saw Health Canada fail to license enough brick-and-mortar retail locations, which markedly hurt sales of dried flower products, the industry is getting absolutely walloped yet again today by the COVID-19 threat.
As of 10:30 a.m. EST Thursday, shares of Aurora Cannabis (ACB +1.16%) are down by 10.6%. Also down are shares of Cronos Group (CRON 1.12%) (11.6%), HEXO (HEXO +0.00%) (11.1%), OrganiGram Holdings (OGI +0.71%) (11.1%), and Tilray (TLRY +0.00%) (12%). That's a lot of red ink, to be sure, especially for an industry that's already taken a huge step backward over the past 12 months.
Image source: Getty Images.
So what
The key concern seems to be the potential impact of COVID-19 on the global manufacturing supply chain. At the moment, nearly all vape products are manufactured in China, which also just happens to be the country hit hardest by this deadly respiratory ailment.
The big deal is that Aurora, Cronos, HEXO, OrganiGram, and Tilray were all banking on high-margin derivative products like vape pens to be a major source of revenue growth in the months and years ahead. Now, it's not entirely clear whether any of these companies will be able to meet the demand for these products during the initial rollout of Cannabis 2.0, thanks to the anticipated disruption in the global supply chain due to COVID-19.
Now what
This latest double-digit drop might turn out to be particularly bad news for Aurora Cannabis and HEXO. Both of these companies now have share prices that are painfully close to violating the minimum bid requirements of the New York Stock Exchange (NYSE) after today's hefty drop. Simply put, Aurora and HEXO need to rebound soon; otherwise, these two pot companies might have to consider a dreaded reverse split in order to remain in compliance with NYSE listing rules.
On the bright side, Cronos, OrganiGram, and Tilray each has a fairly decent buffer in terms of their price per share. So a reverse split shouldn't be much of a concern for shareholders of these three cannabis companies. That being said, the whole market is going through a period of panic-selling over this viral threat, meaning that bargain hunters may want to remain on the sidelines with all of these names today.
