Canadian cannabis producer Hexo (NYSE:HEXO) preannounced its Q4 earnings on Thursday. It reported that its Q4 revenue would be well below its previously issued guidance.
In addition, the company withdrew its fiscal 2020 outlook. HEXO was punished, tumbling 23.6% on Thursday. The company blamed issues in the Canadian cannabis market for the miss.
Hexo’s Q4 Guidance Slammed Tilray Stock
As a result, multiple other marijuana stocks, including Tilray (NASDAQ:TLRY) stock, were slammed as investors reacted to the bad news. By the time the bell rang on Thursday, Tilray stock had plummeted 13.5% to $20.65. It rebounded slightly on Friday, climbing 1.5% to $20.96.
Tilray made statements that indicated that the Canadian cannabis market is having huge difficulties. That triggered panic by investors who were worried that Hexo’s problems are a bad sign for other cannabis producers. Specifically, TLRY reported that:
“Slower than expected store rollouts, a delay in government approval for cannabis derivative products and early signs of pricing pressure are being felt nationally. The delay in retail store openings in our major markets has meant that the access to a majority of the target customers has been limited. Additionally, regulatory uncertainty across the pan-Canadian system and jurisdictional decisions to limit the availability and types of cannabis derivative products have contributed to an increased level of unpredictability.”
Investors hate unpredictability, so that’s worrisome for many marijuana stocks, including Tilray stock. Negative pressure on cannabis sales is not good news at a time when many producers, including TLRY, are struggling to become profitable.
And the possibility that the coming rollout of edibles and other cannabis-infused products —slated to be legalized by Canada in December — could be in trouble, is the last thing that the owners of TLRY stock and other cannabis names want to hear.
Other Marijuana Stocks Were Also Hit
Other cannabis producers suffered significant stock price declines as the market reacted to Hexo’s guidance. Canopy Growth (NYSE:CGC) sank 10.6%, Aphira (NYSE:APHA) lost 14.3%, Aurora (NYSE:ACB) dropped 9.5% and Chronos (NASDAQ:CRON) slid 7.2% on Thursday.
Problems in the Canadian Cannabis Market
The statement by Hexo is a stark reminder of the many challenges facing the Canadian cannabis market. Leadership shakeups, production and distribution challenges, and slow retail store rollouts are among the problems that have plagued the sector. Also dragging down marijuana stocks are lower than expected public demand for recreational marijuana and the black eye of a major producer losing its license after being caught growing pot illegally. As a result of all these negative catalysts, the Canadian recreational cannabis market has not been the gold mine many had hoped for.
In the latest challenge facing marijuana stocks, sales of vaping products that incorporate cannabis extracts are now in jeopardy due to the CDC’s investigation into lung injuries and deaths that may have been caused by vaping. Such vaping products are slated to be legalized by Canada in December.
Most of the reported illnesses and deaths were caused by cannabis products that contain THC. Even if vape products with cannabis extracts aren’t banned, the investigation is likely to scare off many potential buyers.
The Outlook of Tilray Stock
Considering that just over a year ago, TLRY stock hit $214.06, is it a buy after it closed on Friday at $20.96? The shares’ performance has been underwhelming in 2019, with Tilray stock down nearly 72% in 2019.
Most analysts have a “hold” rating on Tilray stock, and their median 12-month price target on TLRY is $52.00. But those numbers don’t yet reflect Thursday’s panic. It’s likely that TLRY stock will bounce back from its HEXO-induced loss as cooler heads prevail, but the long-term outlook of this cannabis stock remains hazy.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
