Cannabis Stock Valuations Cool Off as Markets Struggle

Is the bloom off the bud for cannabis industry investors?

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PHOTO: IQoncenpt / Shutterstock.com

LOS ANGELES – Halloween has come early this year for cannabis investors, as anticipated multi-million dollar deals turned from treats to rocks, in a market that’s gotten spooky.

Cannabis mega-retailer MedMen Enterprises, Inc. had a tumultuous week, as an acquisition by the company of Chicago-based competitor PharmaCann, LLC, was mutually called off, with both companies citing market uncertainty for jinxing the deal.

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“The cannabis sector has evolved tremendously since we first announced the PharmaCann transaction and based on the current macro-environment and future opportunities that exist for our business, we believe it is now in the best interest of our shareholders to deepen, rather than widen, our Company’s reach,” Adam Bierman, MedMen co-founder and chief executive officer, said in a press release.

“Looking at the PharmaCann portfolio today, Illinois has emerged as the most attractive opportunity for our longer-term, strategic growth plan. The addition of those assets, without dilution, is a win for MedMen and our shareholders,” Bierman added.

As a result of the deal’s termination, PharmaCann exchanged assets and licenses in Illinois and Virginia to satisfy investments already funded by MedMen.

MedMen also on Wednesday reported the departure of Chief Financial Officer Michael Kramer, who was terminated. Chief Corporate Development Officer Zeeshan Hyder will replace Kramer, who will remain as a consultant until the end of the year.

Kramer’s departure marks the third executive to leave the company in the past twelve months.

MedMen’s Bierman on Wednesday also acknowledged the company’s dubious place in pop culture history, in a Forbes.com piece.

In an animated short for “Tegridy Farms,” by iconic South Park Studios and legendary director Spike Jonez, MedMen is mercilessly parodied (without being named) and referred to as “a bunch of young corporate banker types come along telling us we’re all in the ‘new normal,’ as they try and turn God’s green miracle into an easy buck for themselves.”

Forbes writer Javier Hasse asked Bierman for his reaction to the video.

“I’m humbled by South Park’s parody,” he told Hasse. “You know, we’ve always said in order to mainstream marijuana, in order to build the mainstream cannabis brand, in order be open and welcoming enough for new people—the cannabis users of tomorrow… you’ve got to become relevant. That’s what a brand is.”

The Associated Press noted the MedMen/PharmaCann non-deal on Wednesday—alongside several financial online news platforms, including Bloomberg—and examined gloomy market reports for cannabis stocks in the U.S. and Canada.

The Horizons Marijuana Life Sciences Index ETF, tracked by pundits, players, and investors, has seen a fifty-five percent drop in value since peaks in cannabis industry stocks last year.

Experts blame the chilling effect on continued regulatory issues, potential anti-trust violations, cautious investors, and markets reacting to global trade troubles, as well as the vaping epidemic, which has emerged since September and resulted in at least twenty-one deaths. Several states have issued vaping bans as federal authorities continue to investigate the cause of the vaping-related condition.

In Canada, cannabis multinationals are also feeling the pain, after billions in investment since nationwide legalization was implemented in 2018.

On Tuesday, Toronto-based Aleafia Health Inc. announced it would end its supply agreement with Ontario-based mega-multinational producer Aphiria Inc., because of Aphria’s failure to meet certain obligations under their agreement.

“We are disappointed that Aleafia has chosen to terminate its Agreement with Aphria Inc. The company had every intention of fulfilling its obligations under the Agreement,” Aphria said in a press release.

“As a large shareholder of Aleafia, Aphria made good faith efforts to ensure continuation of the Agreement understanding it was in the best interest of all parties involved. However, the termination of this legacy Agreement frees up significant supply allowing the company to service its brands that are in high-demand across the country,” the release said further.

The Organic Green Dutchman, another large Toronto-based cannabis producer, announced on Wednesday it had failed to secure funding to expand growing operations located in Ancaster, Ontario, and Valleyfield, Quebec.

The company stated it is reviewing alternative types of funding, and said in a press release that the company had been “in discussions for ordinary course commercial bank facilities and equipment leasing. However, due to changing market conditions, those sources of financing have been unavailable on acceptable terms within the time frames required, leading the company to commence a review of additional alternatives.”

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