On Thursday, Canopy Growth (TSX: WEED) closed a private placement of just over 3.1 million shares at CDN$8.05 to a single investor for gross proceeds of nearly CDN$25 million. After hitting a Thursday 11 AM EDT high of $9.50 on the TSX, it closed well down at $8.95. By Friday morning had recovered some of that lost ground ($9.18 at 11 AM EDT).
Despite the millions already invested in production and distribution, the entire North American marijuana sector remains on somewhat shaky ground in the short term. In May, current U.S. Attorney General Jeff Sessions wrote a letter asking Congress not to renew a federal law that “prevents the DoJ from spending money to interfere with state medical marijuana laws.” Sessions stated at the time that it would “be unwise for Congress to restrict the discretion of the Department to fund particular prosecutions, particularly in the midst of an historic drug epidemic and potentially long-term uptick in violent crime.” The distinct shades of Reefer Madness hysteria seem out of touch in an environment where the opiod crisis, not cannabis, is fueling concern at the moment.
There has been much push back south of the border since the letter. On Thursday, the Senate Appropriations Committee basically told Sessions to get fucked when it approved an amendment affirming its original stance, in place for several years, that the feds have better things to do than get in the way of the eight states (and the District of Columbia) where recreational pot use is legal. Former NFL player Marvin Washington is one of five plaintiffs who filed suit a few days ago against Sessions, the DoJ and the Drug Enforcement Administration, challenging the 1970 Controlled Substances Act.
In Canada, while the federal Task Force on Cannabis Legalization and Regulation continues to plod its way through a morass of issues, it missed a July 1 deadline for withdrawing from international narcotics treaties in a timely fashion. Meanwhile, pot arrests are sharply higher in Quebec than the rest of the country. So the playing field remains rather volatile for players such as Canopy Growth, Aphria, Aurora and other major producers. There is still a long way to go before the Canadian government has to make a decision on the way forward for both medical and recreational cannabis, and it’s no less settled in America.
And yet, Canopy Growth found a buyer willing to cough up $25 million inside a week of announcing its stock offering. In the short and medium term, it’s likely not that risky of a play given the shortages of supply already being seen in Colorado and Canopy Growth had enjoyed positive numbers until recently: on June 27 it announced an operating loss of $15.2 million on $39.9 million in revenues in the previous quarter. That kind of news would normally trigger a negative market response, but the company’s trend has held reasonably firmly between $8 and $9 since then. Still, the way forward remains fraught with uncertainty.