Cannabis stocks were mixed on Wednesday, pressured by a third day of tensions in broader equity markets amid trade conflict between the U.S. and China, as investors await the next crop of earnings from the sector, starting Thursday with Cronos Group Inc.
The Dow Jones Industrial Average DJIA, +0.01% and S&P 500 SPX, -0.16% fell before reversing their losses, after the U.S. government said it is increasing tariffs on about $200 billion of Chinese goods to 25% from 10%. Adding to the gloom was the news that Iran may cease compliance with parts of a 2015 nuclear deal signed with the U.S., Britain, France, Germany, China and Russia. Chinese exports unexpectedly fell 2.7% in April, creating further concerns about the state of the global economy.
In news on cannabis regulation, a congressional committee has canceled planned votes on two bills relating to medical cannabis for army veterans and will hold a later hearing instead, as reported by website Marijuana Moment.
One of the bills proposed allowing U.S. Department of Veterans Affairs doctors recommend medical cannabis in states that have legalized without losing their VA benefits. The second proposed allowing the VA to move ahead with clinical trials evaluating the benefit of cannabis in treating conditions, including post-traumatic stress disorder and chronic pain.
Among individual companies, Cronos Group Inc. shares CRON, +0.13% CRON, +0.29% fell 2%, a day after the company announced the opening of a new research and development center in Israel that will focus on next-generation vaporizer products. Cronos Device Labs has 23 employees, including mechanical, electrical and software engineers and scientists and product designers.
Jefferies analyst Owen Bennett said the news is encouraging, given his concerns that Cronos has lagged behind peers when it comes to innovation, but also questioned whether it signals that partner Altria Inc., which has invested x billion in Cronos, is not helping it to develop vaping products as many had expected.
“While we could be wrong, for us this move would suggest that such an Altria combined offering is not forthcoming and therefore Cronos preparation for derivatives is not perhaps as advanced as many had hoped,” Bennett wrote in a note to investors. The analyst rates Cronos stock as underperform with a C$15 ($11) price target, or about 19% below its current trading level.
Cronos is scheduled to report first-quarter earnings Wednesday before the bell.
The Green Organic Dutchman shares TGOD, +0.47% TGOD, +0.47% were flat, after the company announced the creation of a U.S. beverage company that will offer hemp-derived CBD drinks and its own branded beverages. The company will work with global ingredients company Symrise to form the company, to be called Califormulations, which will initially provide bulk non-infused beverage concentrates to Green Organic Dutchman manufacturing sites around the world, including Canada, for infusion with cannabinoids and distribution in legal markets.
Jefferies’ Bennett welcomed the news which allays his concerns that the company has not moved to cement a position in the U.S. market.
“They had yet to make a move into hemp CBD, and while they have a spun off investment arm taking positions in U.S. assets, unlike certain other peers with similar vehicles, they don’t have warrants to take an ownership stake at some point in the future,’ he wrote in a note to clients. “Against this backdrop, today’s announcement is very welcome and gives them a route to establishing infrastructure, distribution and brand awareness in the US.”
Jefferies rates the stock a buy and has a C$6.50 price target, that is 52% above its current trading level.
Tilray Inc. shares TLRY, -2.48% fell 2%, after the company said it’s spending $32.6 million to expand capacity at its Canadian facilities. The company said it is increasing its manufacturing space to 1.3 million square feet from 1.1 million square feet.
GW Pharmaceuticals PLC rose 1.4%, buoyed by another bullish note, this time from Guggenheim, which rates the stock a buy. Analyst Yatin Suneja weighed in on better-than-expected earnings from Monday and news of a positive trial of the company’s cannabis-based drug Epidiolex, an FDA-approved treatment for severe forms of childhood epilepsy that is now being tested for use in tuberous sclerosis complex, or TSC, another condition that causes seizures. Guggenheim raised its price target to $222 from $186.
Elsewhere in the sector, Aleafia Health Inc. ALEF, -2.92% ALEF, -2.92% shares were down 4.6%, paring some of the gains made in the last two sessions on news of a venture in Germany.
Aurora Cannabis Inc. ACB, -0.12% ACB, +0.00% was up 0.4%, Aphria Inc. APHA, +4.05% APHA, +3.89% was up 1.7% and Hexo Corp. HEXO, +1.07% was down 0.7%. Market leader Canopy Growth Corp. CGC, +1.03% WEED, +0.81% was up 0.7%.
Medical cannabis retailer MedMen Enterprises Inc. shares MMNFF, -3.15% were down 1.2%. Valens GroWorks Corp. VGWCF, -1.17% was down 0.7%.
