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Stock Market News: A Top Pot Stock Goes Higher, But a Buffett Energy Bet's Losing Ground

By Dan Caplinger - Apr 15, 2020 at 12:19PM

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The market fell in response to economic worries.

The stock market moved broadly lower Wednesday morning following news of just how badly the economy has suffered as a result of the coronavirus pandemic. Retail sales fell more than 8% in March, which was even worse than most economists had expected. With many businesses still expected to remain closed for some time, the data could be just the start of an extended period of bad economic numbers. As of 11:30 a.m. EDT, the Dow Jones Industrial Average (^DJI 2.68%) was down 567 points to 23,382. The S&P 500 (^GSPC 3.06%) fell 69 points to 2,777, and the Nasdaq Composite (^IXIC 3.34%) dropped 139 points to 8,377.

Stocks in just about all sectors have gotten hit hard during the COVID-19 crisis, and marijuana producers haven't been immune. Yet Aphria (APHA) announced good news that sent its shares higher. Meanwhile, oil producer Occidental Petroleum's (OXY 2.55%) decision to pay Warren Buffett's Berkshire Hathaway (BRK.A 3.75%) (BRK.B 4.02%) with stock instead of cash shows just how tight liquidity is right now.

Aphria perks up

Shares of Aphria rose 5% Wednesday morning following the cannabis company's fiscal third-quarter report. The Ontario-based pot stock surprised investors with strong results that included soaring sales and a profit.

Marijuana leaf held in two fingers, with cannabis plants in the background.

Image source: Getty Images.

Aphria reported quarterly revenue of 144.4 million Canadian dollars, up 20% from the previous three months and nearly double what it posted in the year-earlier period. Net cannabis revenue of CA$55.6 million was up 65% from the fiscal second quarter. Moreover, the company posted net income of CA$5.7 million, working out to CA$0.02 per share.

Many cannabis companies have needed capital badly enough to resort to shareholder-crushing money-raising moves, but Aphria is in a good position. The pot stock boasted $515 million in cash and equivalents to help it expand both within Canada and internationally.

Aphria has doubled its production, with cash costs on the decline. That's a powerful combination, and as long as demand for marijuana remains strong, Aphria is setting itself up to become a leading force in the cannabis industry.

Paying Buffett

Shares of Occidental Petroleum, meanwhile, were down 12%. The oil and gas exploration and production company made a tough decision in its financing deal with Berkshire Hathaway, and Occidental shareholders weren't happy with the implications.

The Buffett-run Berkshire invested $10 billion in Occidental preferred stock last year, agreeing to an 8% preferred dividend. Rather than making its quarterly payment of $200 million in cash, however, Occidental chose to take advantage of an option it had to pay the dividend to Berkshire in stock instead. The oil company reported that it issued 17.27 million shares of common stock, reflecting a 10% discount under the terms of the preferred stock agreement.

Occidental also immediately registered the stock with the Securities and Exchange Commission, allowing Berkshire to sell it. At current prices, Berkshire won't get the full benefit of the discount, but it appears that it would get well over $200 million if it immediately sells the stock.

Oil prices fell below $20 per barrel Wednesday in the latest sign of just how hard the energy industry has gotten hit by plunging demand. That's bad news for Occidental, but being able to save some cash is valuable for the company -- even if it means diluting current shareholders.

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Stocks Mentioned

Occidental Petroleum Corporation Stock Quote
Occidental Petroleum Corporation
OXY
$57.52 (2.55%) $1.43
Aphria Stock Quote
Aphria
APHA
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$31,500.68 (2.68%) $823.32
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$3,911.74 (3.06%) $116.01
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.A
$417,401.43 (3.75%) $15,101.43
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.B
$278.28 (4.02%) $10.76
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
^IXIC
$11,607.62 (3.34%) $375.43

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