For many struggling U.S. and Canadian cannabis companies, the clock is ticking. According to a new report from Ello Capital, many leading cannabis companies only have enough cash on-hand to last 18 months or less.
Major Canadian businesses, like Aurora ($ACB), Tilray ($TLRY), and Canopy Growth ($CGC) have cash enough to last a median of 6.5 months, Ello Capital estimates. U.S. companies, like Columbia Care, Green Thumb Industries, and Trulieve, the report says, are substantially better off, with cash enough to last a median of 14.4 months.
"I like to look at the U.S. market because I see the best long-term opportunities there and we see some really high quality growers coming out of states like Illinois that have strong cash balances on their sheet and strong business, and, more importantly, management that is fiscally responsible," said Motley Fool investment analyst Emily Flippen. "Put it simply, there are lots of Canadian players that will be sifted out ... but that's not to say that every single pure play cannabis company is doomed."
Published on the heels of a spate of layoffs and management shuffles, the report paints a dire picture of the state of the cannabis industry — but less than two months into 2020, it's already been a rocky one for the cannabis sector. Aurora Cannabis, Tilray, and MedMen are among the latest cannabis companies to announce layoffs, substantial cost-cutting efforts, and leadership departures. Even high profile figures like MedMen former CEO Adam Bierman and former Aurora CEO Terry Booth have not been spared. According to Ello Capital, Aurora and MedMen have liquidity enough for 2.3 and 6 months, respectively.
Investor sentiment around cannabis stocks has chilled in the face of overvaluation, overspending, and underperformance in key markets, and many companies have found themselves cash strapped and swimming in debt. Despite the fact some of these companies may not survive, Flippen said there are options for investors looking for long-term investment opportunities, especially in U.S. cannabis.
"If you're trying to get in and make a quick buck off of cannabis companies, that's a good way to lose your money really fast. But if you are a long-term patient investor, pick good companies that have strong management and forget about them for the next five years. I genuinely think those investors will be fine," she said.
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