…It is becoming increasingly important to focus on a firm’s staying power in light of the current difficult financing market. We think balance sheet and staying power will dictate the competitive landscape in 2020, especially important for the struggling Canadian firms.
…We think investors should avoid companies with weak balance sheets going into 2020 as:
- dilutive financings, as we’ve seen at HEXO and TGOD, could crush share price in a short amount of time and
- upcoming maturity of out-of-the-money convertible debt could force companies to lower conversion price and significantly dilute existing shareholders.
- Aurora Cannabis (ACB) plunged 18% after two research analysts downgraded the stock citing balance sheet risks,
- HEXO (HEXO) continues to drop in the aftermath of its recent financings.
- Supreme Cannabis (OTCQX:SPRWF) fell 23% after the sudden departure of its CEO…
…We think Canopy, Cronos, and Aphria will have the most financial flexibility in 2020 which affords them more opportunities to pursue opportunistic acquisitions, expansions into new markets, and, most importantly, the crucial staying power while the industry consolidates.