Investors are bracing for more job cuts and writedowns at Canadian cannabis producers before the industry stabilizes and becomes profitable, after two of the biggest weed companies, Aurora Cannabis ACB.TO and Tilray TLRY.O announced cost reductions this week.
Canada legalized recreational cannabis in October 2018 but profits have proven elusive for most marijuana companies as fewer-than-expected retail stores, higher prices than on the black market and slow overseas growth resulted in oversupply.
“The Aurora story will be much more common in 2020,” said Hap Sneddon, founder and chief portfolio manager at Castlemoore. “I don’t see rationalization. I see companies leaving the business.”
Many producers, including Canopy Growth WEED.TOCGC.N, Aurora, Tilray and Aphria APHA.TO rapidly expanded at home and overseas as capital flooded into the industry before legalization.
Aurora announced a writedown on Thursday of as much as C$1 billion, 500 job cuts and the departure of its chief executive. Tilray said on Tuesday it cut 10% of its workforce, or about 140 jobs.
Lack of profitability is common in new industries, but a prolonged period of higher cash burn unnerves investors. [Read more at Nasdaq]
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