During the last year, the cannabis industry has come under considerable pressure and Canadian Licensed Producers (LPs) were especially impacted by this.
Although the US cannabis industry has recorded incredible growth after two additional states legalized recreational cannabis (Illinois and Michigan), a few US multi-state operators have come under massive pressure.
So far this year, we have seen a rise in the number of cannabis businesses that are filing for bankruptcy. A lot has changed since 2018 and many companies that were once considered to be unicorns (startup companies that are valued at $1+ billion) are on the verge of becoming microcraps. (our term for microcap cannabis businesses)
The types of companies that are a microcap are those which have a market capitalization that is in the approx. $50 million to $300 million range. Although a majority of cannabis companies are considered to be microcaps, the companies that we refer to as microcraps were previously valued at more than $1 billion and are now valued in the $50 million to $300 million range.
Today, we want to highlight 5 North American cannabis companies that were once valued at more than $1 billion and were considered to be unicorns. These companies are now considered to be microcaps or are heading in that direction and we believe that our readers should be aware of this trend.
At its peak, Aurora Cannabis Inc. (ACB.TO) (ACB) was valued at more than $11 billion (before October 2018) and was one of the highest valued Canadian LPs. Currently, the company is valued at less than $500 million and we would not be surprised if the valuation continues to decline. Aurora Cannabis used to have a very bright future; however, the business has become highly focused on the US CBD market and this is a vertical that we consider to be saturated. Analysts have continued to lower price targets and expectations on Aurora Cannabis and this is a trend that keeps us cautious
Although HEXO Corporation (HEXO.TO) (HEXO) has been a major underperformer and has fallen more than 50% so far this year, the recent announcements have been significant. Going forward, we expect the cannabis beverage joint venture that HEXO has with Molson Coors (TAP.CN) to be a major growth driver. We believe that the recent developments have played an important role in how HEXO has been able to avoid being considered a microcrap stock. At its peak valuation, HEXO’s market cap was well above the $1 billion mark. Currently, the company’s market capitalization is approx. $340 million and we will monitor how the story continues to evolve.
Before MedMen Enterprises Inc. (MMEN.CN) (MMNNF) commenced trading on the Canadian Stock Exchange (CSE), we attended a panel that featured Adam Bierman (who was ousted as CEO earlier this year) and left the presentation feeling uneasy about the opportunity. At its peak, MedMen had a more than $2 billion market capitalization. Currently, the US cannabis retailer is valued at less than $50 million and we remain cautious with the near-term outlook. Going forward, we believe that MedMen can go two directions, being acquired for pennies on the dollar or being taken private by Gotham Green Partners (which has investment more than $200 million of debt in it).
We consider Sundial Growers Inc. (SNDL) to be one of the largest failures in the cannabis industry. After completing an IPO that valued the business at more than $1 billion, the shares cratered. Less than six months later, Sundial’s core management team resigned and this did not comes as a surprise to us. Currently, the company is valued at less than $45 million and would no longer fall under the microcrap category. At these levels, Sundial would be considered to be a nanocrap. Nanocap (or nanocrap as we like to call them) companies are valued at less than $50 million and we remain on the sidelines with Sundial for the foreseeable future.
From a performance standpoint, Zenabis Global Inc. (ZENA.TO) is a company that we like to compare to Sundial Growers. The company has been a dumpster fire and is an opportunity that we continue to avoid. At its peak, Zenabis was trading for more than $4 per share. Currently, Zenabis is trading at $0.055 per share and is valued at less than $40 million. We believe that Zenabis took the express route to becoming a nanocrap and will remain cautious with the opportunity for the foreseeable future.
If you are interested in learning which companies are on the verge of becoming microcraps, please send an email to [email protected] to be added to our distribution list.