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Why 22nd Century Group, HEXO, and Canopy Growth Stocks All Popped Today

By Rich Smith - Jun 7, 2021 at 5:51PM

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Two cannabis companies team up to explore new forms of cannabis consumption.

What happened

Marijuana stocks are growing again Monday -- with a little help from 22nd Century Group (XXII -6.91%).

In a pair of press releases, 22nd Century first announced that it is selling 10 million shares of stock to an institutional investor at $4 a share, in order to raise $40 million "to support the Company's strategic objectives across all of its plant franchises." Then 22nd Century announced that one of these "objectives" will be to partner with Aurora Cannabis (ACB -5.76%) to "actively explore commercial development opportunities" on tobacco and cannabis products.    

22nd Century stock jumped 13.2% today, and Aurora Cannabis stock closed 8.3% higher -- but cannabis stocks HEXO (HEXO -2.31%) and Canopy Growth (CGC -0.66%) climbed higher as well, ending up 3.7% and 5.8%, respectively.

Close-up of marijuana plants.

Image source: Getty Images.

So what

What's the connection here? What connects point A (22nd Century and Aurora's partnership) to point B (HEXO's and Canopy's reaction to the news)?

Two theories suggest themselves. First, in 22nd Century's announcement, it mentioned that it has secured "strategic partnerships with two leading alkaloid specialist plant breeders to complete [its] full scope of upstream capabilities." 22nd Century didn't identify either partner, saying it will give more detail on this only in its Q2 2021 earnings call in August -- but investors may be starting to place bets among the publicly traded marijuana producers as to who they might be.

But second, even if neither HEXO nor Canopy Growth are the partners, 22nd Century's raising of capital -- and investing it in, among other things, forming a new "22nd Century Canada" Canadian subsidiary to exploit "expanded activities in tobacco, hemp/cannabis and its yet-to-be announced third franchise" and commercializing "key aspects of cannabinoid biosynthesis in the hemp/cannabis plant and microorganisms" -- suggests renewed enthusiasm for the marijuana business.

Now what

Of course, the question still remains whether any of these new developments will be enough to move the needle and turn the marijuana industry profitable. To date, of the four companies named above, not one has been able to book even a single full-year profit in the three years since Canada legalized marijuana for recreational use. To the contrary, the larger companies (Canopy and Aurora) seem to lose more and more money with each passing year.

Maybe 22nd Century's growing role in this industry will do something to change that. Maybe, though, its deeper involvement will just contribute to the situation of oversupply that has kept a lid on cannabis prices and kept the marijuana industry as a whole unprofitable for years.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends HEXO Corp. The Motley Fool has a disclosure policy.

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Stocks Mentioned

22nd Century Group, Inc. Stock Quote
22nd Century Group, Inc.
$1.42 (-6.91%) $0.10
Aurora Cannabis Stock Quote
Aurora Cannabis
$1.55 (-5.76%) $0.10
Canopy Growth Stock Quote
Canopy Growth
$3.79 (-0.66%) $0.03
HEXO Stock Quote
$0.23 (-2.31%) $0.01

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