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Why Aurora Cannabis, Canopy Growth, Tilray, and Sundial Growers Stocks Flamed Out on Wednesday

By Rich Smith – Nov 10, 2021 at 12:25PM

Key Points

  • Good news: A new marijuana legalization bill has the potential to advance the long-awaited movement to legal weed.
  • Bad news: Legalization will probably come with new taxes.
  • Meanwhile, another marijuana company just reported a quarter of losses and declining sales.

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Marijuana legalization just got more probable -- and taxation more likely.

What happened

Monday was a great day to own marijuana stocks, which soared on news of mergers and acquisitions in the industry, as well as a potential breakthrough in marijuana legalization in Washington, D.C. -- but on Wednesday, the hangover is starting to set in.

As of 10:50 a.m. EST here's where shares of some of the leading marijuana stocks had landed:

  • Aurora Cannabis (ACB 5.67%) was down 3.9%.
  • Tilray (TLRY 5.81%) and Sundial Growers (SNDL 2.56%) were both off about 2.8%.
  • Canopy Growth (CGC 6.09%) was sliding 2.6%.
Burning marijuana joint.

Image source: Getty Images.

So what

You can probably blame Aurora Cannabis for much of today's decline. Last night, Aurora reported its financial results for its fiscal first quarter of 2022 -- the most recent in a string of downbeat reports.

On the one hand, Aurora said that "net of provisions," its revenue for the quarter grew 10% sequentially when compared to the fiscal fourth quarter of 2021. Year over year, however, sales were down 11%. Aurora management lamented the fact that "reduced orders from the provinces in Canada" sent its consumer cannabis sales (i.e., recreational marijuana) tumbling 44% year over year. After a drop like that, even a 23% increase in sales of medical marijuana wasn't enough to save the quarter.  

Commenting on the quarter, analysts at investment bank CIBC pointed out that retail sales trends still have not "leveled off," reports

Now what

For now, Aurora is just focused on cutting costs and "realizing operational efficiencies" in an attempt to lower its losses and slow the rate of its cash burn. And as you'll recall, those moves echo reports from peer pot producer Hexo (HEXO -3.68%) yesterday, which had to announce the closure of three production sites in order to lower its own rate of loss. (Hexo stock is down 4.4% by the way -- even worse than the others).

And things could still get worse. As reported last week, the new "Republican-led bill" to legalize marijuana, which is being hailed as a potential compromise with the Democrats to get marijuana legalization legislation unstuck in Congress, contains a provision to impose a 3.75% federal excise tax on all sales of cannabis in the country -- on top of any state sales taxes.  

For an industry that's already struggling to find a way to earn a profit, the reminder that legalization will come with new taxes is probably the opposite of what investors wanted to hear.

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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