Is the Canadian Marijuana Index Headed to Zero?

The Canadian Marijuana Index (CMI) has been in free fall since the latter part of H1 2019, declining a brutal 70% between April and November this year to reach 197. For some context, the last time the CMI was this low was October 2016—roughly 2 years before marijuana was even legal for consumption in Canada.

With cannabis earnings down across the board and edible products likely months away from hitting store shelves, investors are left wondering what kind of future Canada’s embattled marijuana sector has left, if any…

Pot Companies Cut Back In Quest For Profitability

The cannabis industry’s growth over profits spending mentality—not unlike that which characterized the dot-com bubble—has come to an end.

According to the Motley Fool, each of Canada’s “Big Four” cannabis companies posted significant operating losses in their latest quarterly results; Aurora Cannabis saw approximate operating losses of C$77.4 million, Canopy Growth C$265.8 million, Cronos Group C$30.0 million and Tilray C$23.3 million.

In follow-up to these earnings, a handful of the Big Four announced proactive steps to reduce their operating expenses; Aurora declared it would be halting the construction of two of its cannabis facilities while Cronos Group stated it would repurposing growing space for activities like R&D and manufacturing.

But it isn’t just Canadian cannabis companies that are beginning to aggressively cut costs. U.S.-based MedMen Enterprises announced last Friday that it would be laying off 190 employees in addition to selling off non-core assets.

Via Bloomberg,

“MedMen will . . . divest non-core assets, including the sale of its stake in Treehouse Real Estate Investment Trust for net proceeds of $14 million. MedMen created Treehouse last year . . .”

On the same day that MedMen announced its divestment and corporate restructuring plans, Jushi Holdings, another U.S. cannabis company, reported its Q3 2019 financial results. While Jushi reported a net income of US $4.2 million for the quarter, the company would have posted a loss of US $9 million had it not been for the US $13.2 million sale of Jushi’s minority stake in Gloucester Street Capital.

How Low Can The Canadian Marijuana Index Go?

All across North America, cannabis companies are putting their growth plans on hold and selling off assets to reach profitability and regain investor confidence. But considering the crushed state of Canada’s Marijuana Index, one has to wonder if it’s all too little too late…