Some Cannabis Stocks Cutting Their 2020 Production

According to Motley Fool, 2019 has been a wake-up call for cannabis investors. Similar to all other next-big-thing investments over the past quarter of a century, marijuana’s bubble has burst. All fast-growing industries eventually run into “growth hiccups” and need time to mature. For the pot industry, this was the reality check.

Supply issues remain persistent throughout most of Canada this year and are expected to extend well into 2020, so a number of major producers have chosen to reduce their cannabis output. Here are five cannabis stocks that won’t come close to hitting their peak production (as once advertised) in 2020.

Aurora Cannabis

Even though it wasn’t the first marijuana stock to announce production cuts, Aurora Cannabis (NYSE:ACB) is easily the most notable, given the emphasis it’s placed on capacity expansion over the past two years. If fully operational, Aurora’s 15 facilities could yield close to 700,000 kilos annually, but the company’s 2020 fiscal run-rate output will be perhaps half this amount, at the most.

When Aurora reported its fiscal first-quarter operating results, the company announced plans to halt construction of Aurora Nordic 2 in Denmark and Aurora Sun in Alberta to conserve capital. The company will still utilize six grow rooms at Aurora Sun, covering 238,000 square feet of the 1.62 million square feet the campus has projected for cultivation, while Aurora Nordic 2’s 1 million square-foot campus will be completely idled. All told, this works out to perhaps 325,000 kilos of forecasted run-rate output that’s expected to be idled in 2020.

HEXO

Similar to Aurora, Quebec-based HEXO (NYSE:HEXO) made the announcement to reduce its output during the company’s previous quarterly report (its Q4 2019 results). HEXO advised investors that it would be idling cultivation at the Niagara facility, acquired when it bought Newstrike, as well as halting output at 200,000 square feet of its flagship Gatineau facility. In total, Niagara has peak production capacity of around 42,000 kilos, with HEXO’s total production cut amounting to perhaps 50,000 kilos per year.

Following the company’s release of its fiscal first-quarter operating results earlier this week, it’s very clear these cuts are necessary. Net revenue wound up falling to 14.5 million Canadian dollars from CA$15.4 million in the sequential fourth quarter, with its loss from operations totaling a staggering CA$58.5 million in the period.

Cronos Group

Although production cuts will be minimal for popular pot stock Cronos Group (NASDAQ:CRON), the company nevertheless followed suit with its peers and announced something of an operational realignment in its third-quarter report. Here’s how Cronos Group put it:

Certain facilities at the Peace Naturals Campus will be partially repurposed from cultivation to provide for additional R&D [research and development] activities, production and manufacturing of derivative products, and will allow for increased vault and warehousing capabilities. In addition, certain facilities at the Peace Naturals Campus will transition to R&D areas focused on new technologies for value-added product manufacturing.

With derivative products beginning to hit Canadian dispensary shelves this week, and these products responsible for substantially higher margins than traditional dried cannabis flower, it makes sense for growers like Cronos to focus on derivatives. It’s just noteworthy that Cronos Group’s only current source of production, Peace Naturals, a facility capable of 40,000 kilos (at maximum) per year, is being partially repurposed for derivatives research and manufacturing. Cronos is already lagging its peers in the production department, and that gap could widen even more in 2020. (Courtesy of Motley Fool) Continue Reading: Sean Williams

 

 




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