Canada’s cannabis sector — once a hub for investors looking to take advantage of a budding market — has been put under pressure by ongoing waves of volatility.
Several recent executives departures, cuts to staff and unsatisfactory quarterly results have come as a result of that same volatility as of late, but one expert says the current trend toward rightsizing will ultimately be to the industry’s benefit.
“Most of these cuts for costs will actually turn out to be positive and help the lifespan of these companies,” said Nawan Butt, a portfolio manager at Purpose Investments.
In an interview with the Investing News Network (INN), Butt noted that now is the time for companies within the crowded sector to execute efficiently, which will help ease the overall downturn currently facing cannabis.
Rightsizing has been an increasingly popular move on the part of some Canadian marijuana firms.
On Tuesday (February 11), The Supreme Cannabis Company (TSX:FIRE,OTCQX:SPRWF) let a total of 15 percent of its staff go in an effort to focus on “near-term revenue generating opportunities and creating a more nimble and effective corporate structure,” the company said.
Last week, both Tilray (NASDAQ:TLRY) and Aurora Cannabis (NYSE:ACB,TSX:ACB) made staff cuts. They followed Sundial Growers (NASDAQ:SNDL), which reduced its workforce in late January due to a slow store rollout and difficult market conditions.
Butt said that now the industry is working out the remnants of the “hysteria and hype” that propelled the space early on. That zeal led to producers spending too much money ahead of the launch of the market, Butt continued, instead of focusing on the consumer angle of the business.
A resilient black market and stunted retail segment also pushed down on the legal cannabis landscape, but the recent move towards tighter operations has signalled a better understanding of the consumer segment, Butt told INN.
He said, “(Companies now understand) they have to have tight operations, cost effective operations, to compete in this market where there’s a plethora of producers and really not as many consumers have switched over from the black market.”
Along with the cost cutting measures, a number of some of the more notable leaders in the sector have exited the space.
Aurora, for one, lost its long-time CEO Terry Booth after the executive announced his retirement last week alongside the news of some major changes to the company’s capital spending and operations.
The CEOs of Sundial, TerrAscend (CSE:TER,OTCQX:TRSSF) and Supreme shared a similar fate and have left their respective companies in the last few weeks as well.
The executive exodus isn’t entirely new, however. In Butt’s view, the firing of Canopy Growth’s (NYSE:CGC,TSX:WEED) former co-CEO Bruce Linton following some disappointing quarterly results last July foreshadowed the need to change the approach to generating profit.
Linton was ultimately replaced by Constellation Brands (NYSE:STZ) executive David Klein in December.
The alcohol maker made a C$5 billion investment into Canopy in 2018, and in an interview with Squawk Box, Linton said the investment came with a condition to reconfigure the board of directors at Canopy.
“I think the board had decided they wanted a different chair and a different co-CEO,” Linton said previously.
Butt said friction at the top between the CEOs and the board of directors at some Canadian marijuana companies has revealed a need to adjust their outlook on the sector over all.
The termination of the former executive helped push the Canadian producers to understand that “there isn’t a blue sky scenario,” Butt explained, and along with general rightsizing, the sector will be in a much more stable position.
“This is actually a big positive move because it aligns everybody’s interests, from the shareholders to the stakeholders to the (licensed producers) themselves,” Butt told INN.
The view hasn’t been shared by some experts in space.
Last month, Evolve Funds Group decided to shutter their two cannabis-focused funds, the Evolve Marijuana Fund (TSX:SEED) and the Evolve US Marijuana ETF (NEO:USMJ). The funds will be closed by late March.
SEED, Evolve’s globally focused cannabis fund, has a majority of its holdings in Canadian companies and has also lost over half of its value in the past six months.
Elliot Johnson, the chief investment officer at Evolve, told INN the decision to close down the funds was ultimately done in view of the market’s difficulties.
“In Canada, we really feel that there’s been a significant over-regulation and mismanagement of the rollout of legalized cannabis in this country,” said Johnson.
“We think that there’s a lot more hurdles in front of these businesses than people may have been expecting back … (when) legalization day happened in October 2018,” Johnson added.
As for the job cuts, Butt said that overall, they don’t account for a significant portion of the total workforce in cannabis.
And with the trend towards streamlining operations, Butt told INN that the marijuana firms are now on a better path towards optimization.
“This really sets up Canada and Canadian LPs to now start distinguishing themselves on operations, where you’ll start seeing the winners and the losers, the winning strategies and losing strategies, really start moving away from each other (in) a decoupling, essentially.”
Butt said Canadian firms now have the next few quarters to prove their business models as they move towards profitability or towards losing less money at this point, he said.
“I think this is the sort of soft catalyst that you need for these LPs to refocus their efforts to become profitable and make this industry sustainable and viable in the long term, rather than just being an accumulation of assets at wild valuations.”
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Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
“实际上，这些成本削减大多将是积极的，有助于这些公司的生存，” Purpose Investments 投资组合经理 Nawan Butt 表示。
Butt 在接受投资新闻网络（ INN ）采访时指出，现在是拥挤行业内的公司高效执行的时候了，这将有助于缓解目前大麻面临的整体经济低迷。
周二（2月11日），最高大麻公司（ TSX ： FIRE ， OTCQX ： SPRWF ）让15%的员工集中精力“创造短期收入机会，创造更灵活有效的企业结构”，该公司表示。
上周， Tilray （ NASDAQ ： TLRY ）和奥罗拉（Aurora） Cannabis （ NYSE ： ACB ， TSX ： ACB ）都裁员。他们跟随 SundayGrowers （纳斯达克指数： SNDL ）的脚步，该公司在1月下旬因门店铺展缓慢和市场环境困难而裁员。
巴特对 INN 表示，一个有弹性的黑市和令人震惊的零售板块也推动了大麻的合法发展，但最近收紧业务的举措表明，消费者细分市场有了更好的了解。
例如，奥罗拉( Aurora )就失去了长期首席执行官特瑞•布斯( Terry Booth )。上周，奥罗拉宣布退休，同时传出该公司资本支出和运营出现一些重大变化的消息。
Sunday 、 TerrAscend （ CSE ： TER 、 OTCQX ： TRSSF ）和 Supreme 的首席执行官们命运相似，在过去几周也离开了各自的公司。
然而，高管离职并非完全是新的。巴特认为， Canopy Growth 公司（ NYSE ： CGC ， TSX ： WEED ）前联席首席执行官布鲁斯•林惇( Bruce Linton )去年7月发布的一些令人失望的季度业绩，预示着需要改变创造利润的方式。
去年12月，星座品牌公司（ NYSE ： STZ ）高管大卫·克莱恩（ DavidKlein ）最终取代了林惇。
这家酒精制造商在2018年向 Canopy 投资50亿加元，林惇在接受 Squawk Box 采访时表示，这笔投资附带了一个条件，可以重新配置 Canopy 的董事会。
“这实际上是一个重大的积极举措，因为它将所有人的利益——从股东到利益相关者，再到（特许生产商）自己，” Butt 告诉 INN 。
上个月， Evolve Funds Group 决定关闭两只专注于大麻的基金—— Evolve Marijuana Fund （ TSX ： SEED ）和 Evolve US Marijuana ETF （ NEO ： USMJ ）。这些基金将在3月下旬关闭。
Evolve 专注于全球的大麻基金 SEED 持有加拿大公司的大部分股份，在过去6个月中也损失了一半以上的价值。
Evolve 首席投资官埃利奥特•约翰逊( Elliot Johnson )告诉 INN ，关闭这些基金的决定最终是出于市场的困难。
而且随着经营的合理化趋势， Butt 告诉 INN ，大麻公司现在正在朝着优化的方向发展。
“这真的让加拿大和加拿大的 LPs 开始在运营中脱颖而出，在运营中，你将开始看到赢家和输家，赢的策略和输的策略，真正开始相互背离（本质上是脱钩）。”
“我认为这是一种软催化剂，你需要这些 LPs 重新调整其努力，以实现盈利，并使这个行业长期可持续和可行，而不仅仅是在估值过高的情况下积累资产。”
证券披露：我， DanielleEdwards ，没有在本文提到的任何公司直接投资权益。