What happened
Canadian cannabis companies have had a tough week on the heels of Hexo's (HEXO) quarterly financial report. But after the shares of Hexo and peer Sundial Growers (SNDL -3.38%) rebounded earlier today, they, along with American counterparts Curaleaf Holdings (CURLF 2.02%) and Green Thumb Industries (GTBIF 2.46%), reversed course. As of 1 p.m. ET, Curleaf and Green Thumb shares were down 2.9% and 1%, respectively. And while Hexo and Sundial stocks had both jumped more than 5% earlier in the session, they had reversed those gains as well with a drop of 0.1% and gain of 0.45%, respectively.
So what
Investors in the industry were spooked earlier this week after Hexo reported a large net loss for its fiscal 2022 first quarter along with announcing a new strategic plan going forward. U.S. multi-state operators (MSOs) are now dropping, too. That comes after Curaleaf announced it was raising $425 million in high-priced debt on Monday. But the 8% interest rate is actually "materially lower" than existing debt the company has.
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Now what
Curaleaf said it will use the money from what company CEO Joseph Bayern said he believes is "the largest debt financing of any publicly traded MSO to date" to refinance the existing debt.
Those details can be looked at as a "good news is bad news" scenario by cannabis investors. And Hexo's quarterly report provides a similar takeaway. For Curaleaf, the 8% interest rate on the most recent senior secured debt isn't enviable in today's low rate environment. The fact that it will replace even higher-cost debt is good, but that doesn't make it great.
And while Hexo's new strategy calls for achieving positive operating cash flow within a year, that projection won't necessarily materialize. And the latest report showed a rise in operating expenses in virtually every category. Investors in the cannabis sector seem to be realizing the bigger-picture outlook isn't very positive at this time. Until legislators in the U.S. make further progress toward federal legalization, both U.S. and Canadian marijuana stocks are likely to tread water at best.
