If more proof was needed to show just how jittery investors in the cannabis sector are, one need look no further than what happened to shares of Cronos Group (NASDAQ:CRON) (TSX:CRON) last week.
This jumpiness is part of the picture for the overall sector, as some of the major marijuana companies—unable to turn a profit as they wait for the US to legalize weed which would provide a clear path to the world’s largest market—continue to jockey for position.
Canadian-based Cronos saw its shares take a nose-dive last week after the cannabis company announced it had to delay its third-quarter earnings report. The delay is a result of its auditors requesting more time to be able to properly calculate a writedown of its US business operations.
The shares slumped 18.5%, from US$6.70 on Nov. 8 to hit a low of US$5.46 on Nov. 10. By the end of last week, the stock had rebounded somewhat to end the week down 6.5% at US$6.26. It closed yesterday at US$5.94, a 5.1% loss on the day.
The writedown involves a US$220-million impairment charge on its US division that markets and distributes CBD products. It is now expected Cronos will unveil its Q3 earnings within the next two months, although no firm timeline has been provided.
The notice from the company stated:
“The company has been unable to complete its financial statements for the three and nine months ended Sept. 30, 2021, because the audit committee of the company’s board of directors requires additional time to evaluate goodwill and indefinite-lived intangible assets in the company’s US reporting unit for impairment. The company expects that it will record an impairment charge of not less than $220 million on goodwill and indefinite-lived intangible assets in its US reporting unit for the three and six months ended June 30, 2021, and may incur an additional impairment in the three months ended Sept. 30, 2021. The impairment charge is not expected to impact cash and cash equivalents or revenues.”
But that is not the whole story.
The share price of Cronos swelled just before this announcement on speculation that the cannabis owner would be purchased entirely by one of its major stock holders—US-based tobacco giant Altria Group (NYSE:MO). Altria holds about a 45% stake in Cronos as it stands. The headline on the report published by New Cannabis Ventures read: “Altria May Be About To Buy Cronos Group.”
The report triggered an uptick in Cronos stock, but besides offering only a thesis on why a buyout could make sense, there was no solid evidence provided in the report. And the headline reflected that. You just had to apply the old Journalism 101 test that says never use the word “may” in a headline because if something “may be true” it is equally likely that it “may not be true.” Which leaves the question: What exactly are you reporting?
But the stock reacted.
Yet, that, too, may not be the whole story.
If you look at the broader cannabis sector, many of the major players saw their stock prices buoyed last week when a draft bill was said to be about to be introduced in the US House of Representatives that would reschedule cannabis, effectively legalizing it. But nothing has actually happened yet.
In the end, it all points to just how jittery investors are, which simply adds to the volatility of the sector at the moment. Everyone is looking for good news—anything, something, sort of, kind of, please.
Then again, perhaps it is not just that they are looking, but that they desperately need it.