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Why Tilray, Hexo, and OrganiGram Holdings Stocks Dropped Today

By Howard Smith – Dec 20, 2021 at 6:41AM

Key Points

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These stocks are caught in a general stock market downturn, but there are also questions about the cannabis market itself.

What happened

General market weakness is hitting many sectors today, especially higher-risk holdings. Cannabis stocks certainly qualify as high-risk, and Canadian names Tilray (TLRY -3.38%), Hexo (HEXO -5.34%), and OrganiGram Holdings (OGI -1.99%) are all in the red in Monday morning trading. As of 11:08 a.m. ET, these stocks were trading down 6.1%, 5%, and 4.7%, respectively. 

So what

In addition to a risk-off mentality from investors in general, a large Canadian peer, Canopy Growth, was also downgraded to the equivalent of a sell recommendation at investment bank Piper Sandler today due to negative sales trends across the company's business, reported CNBC.

Young marijuana plants in containers.

Image source: Getty Images.

Besides today's downgrade within the sector, a recent financial update from Hexo has been pressuring the Canadian marijuana stocks. But Tilray is forging ahead with its strategy to push toward $4 billion in annual revenue, recently announcing another acquisition in the U.S. 

Now what

It's been a rough stretch for cannabis sector investors. Shares of Tilray, Hexo, and OrganiGram are down about 31%, 38%, and 9.3%, respectively over the past month. As mentioned, Hexo recently released a quarterly financial report that wasn't well received by investors. The company showed operating expenses that soared, which resulted in a net loss of over $90 million. And it announced a new strategic plan that investors thought might be overly aggressive in projecting positive cash flow over the next year. 

Tilray hasn't wavered in pursuing its own strategy, however. The company plans to grow its total fiscal year revenue to $4 billion by the middle of calendar year 2024. Earlier this month, it announced a new acquisition in line with its strategy. It acquired Colorado-based whiskey maker Breckenridge Distillery. That joins SweetWater Brewing as U.S.-based alcohol companies under Tilray ownership. CEO Irwin Simon said in a statement, "The Breckenridge Distillery transaction is consistent with Tilray’s strategy of leveraging our growing portfolio of U.S. CPG [consumer packaged goods] brands to launch THC-based product adjacencies upon federal legalization in the U.S."

Of course, federal legalization isn't a certainty by any means, nor is there a timeline in place should it occur. But legalization has been expanding at the state level, giving investors hope that the U.S. market will eventually open to Canadian growers. That is one of several big risks surrounding investing in these companies. Today, the market isn't fond of the higher-risk names, including these pot stocks. 

Howard Smith owns Tilray, Inc. The Motley Fool owns and recommends OrganiGram Holdings. The Motley Fool recommends HEXO Corp. The Motley Fool has a disclosure policy.

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