Why are weed stocks rallying?
Canada’s growing export market, potential moves on de-banking, and Tilray’s JetBlue deal contributed to a rally in weed stocks.
Cannabis stocks rallied on Wednesday amid a smattering of upbeat news after a gloomy year.
As always, it’s difficult to pinpoint what causes a swing in cannabis stocks. The cohort lacks significant institutional investment, so stock prices are less tied to analyst ratings or estimates. Most cannabis companies are also penny stocks, meaning they’re more susceptible to outsized percentage swings: a $1 stock that gains 25% in one day is still only worth $1.25.
But we try our best. Some things that happened today:
Will Canadian cannabis become an export market?
Aurora Cannabis, a Canadian cannabis operator, reported “record-breaking” earnings on Wednesday that beat analyst expectations. It reported $21.8 million in net income, compared to the $1.4 million loss analysts on FactSet were expecting. It also reported $61.6 million in sales compared to the $55.7 million analysts forecast.
Aurora’s growth was primarily thanks to its international sales. Increasingly Canadian cannabis companies, struggling to grow domestically, are exporting cannabis to Europe and other countries where it is regulated.
Aurora’s success appeared to give investors hope that its peers in the Canadian market may also benefit from increased international sales. Canopy Growth, Cronos Group, and SNDL Inc. each rallied on Wednesday after Aurora reported.
Canopy, which reports earnings on Friday, saw increased options activity. Call activity spiked on Wednesday and is on track to reach its highest one-day total since May. Some of the most active contracts are calls with strike prices of $2 and $3 that expire on Friday.
In other news
Tilray, which is now as much of a booze company as it is a cannabis company, announced that its Montauk beers would soon become available on JetBlue domestic and international flights.
The Senate Banking Committee held a hearing on Wednesday on de-banking, an issue that plagues US cannabis operators, which are often ditched by their banks with little notice because their business is federally illegal and could create a liability for the financial institution.
While the hearing specifically pertained to “federally legal” business, senators were urged by one of the witnesses, Aaron Klein of the Brookings Institution, to pass the Secure and Fair Enforcement (SAFE) Banking Act, which would provide legal protections for banks that service cannabis operators with state licenses.
