Cannabis investors may be in for an unpleasant surprise

By Bloomberg Time of article published Jul 15, 2019

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INTERNATIONAL - Cannabis investors banking on profitability in the second half of the year may have another thing coming: More losses at best, and maybe a surprise stack of write-downs.

Although pot stocks have enjoyed a heady start in 2019 due to global marijuana legalisation efforts and the burgeoning use of CBD as a wellness product, backers are starting to judge their investments by profitability instead of hype, and patience is wearing thin.

Of the five largest Canadian pot companies, only Cronos Group is expected to report adjusted net income by the final quarter of the year, according to data. Instead of profit, write-downs related to unfinished inventory may be in the offing for some Canadian companies.

That has some investors voting with their feet, moving out of Canada and into the US, where the marijuana companies are generally performing better, despite a patchwork of state-by-state regulations.

“It’s symbolic that the Canadian guys have really not been able to deliver on some of their expectations and the US companies have,” said Greg Taylor, chief investment officer at Purpose Investments and manager of the Purpose Marijuana Opportunities Fund.

Until recently cannabis companies could get away with losing large sums of money as long as they said the right things about their future growth prospects. But the abrupt firing last week of Bruce Linton, co-chief executive officer of Canopy Growth, indicates that things have changed. Linton’s departure came after the company lost C$323million (R3.45billion) in the quarter ended March 31. 


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