The seemingly unstoppable expansion of marijuana legalization is generating undeniable enthusiasm and economic optimism about the future of the industry. But upon closer inspection, the cannabis market isn’t as bullish as it may appear. Somewhat ironically, it’s the hype surrounding the legal market that’s setting up companies for major losses. And Canadian cannabis producer Aphria is a case in point. On Monday, the company’s third-quarter report sent its shares plummeting 15 percent. Market analysts didn’t have high hopes for Aphria to begin with, but the company performed much worse than expected. So what happened?
Positive Feedback Loop of Hype Ends Up Hitting Aphria’s Stock Value Hard
At the root of Canadian cannabis producer Aphria’s problems is simply that it needed to sell more weed. But a failed takeover bid and a $50 million over-valuation of its Latin American assets didn’t help. Neither did a high-profile analysis of Aphria’s earnings, which showed “negative margins, decreased production volume, regulatory scrutiny and a large write off for its Latin American acquisitions, which we think will be the first of many,” according to Quintessential Capital Management‘s Gabriel Grego.
In fact, the report was so damning that Quintessential took up a short position on Aphria,