Advertisement
Canada markets close in 2 hours 19 minutes
  • S&P/TSX

    22,167.99
    +60.91 (+0.28%)
     
  • S&P 500

    5,251.75
    +3.26 (+0.06%)
     
  • DOW

    39,771.15
    +11.07 (+0.03%)
     
  • CAD/USD

    0.7390
    +0.0017 (+0.24%)
     
  • CRUDE OIL

    82.80
    +1.45 (+1.78%)
     
  • Bitcoin CAD

    95,726.69
    +2,222.36 (+2.38%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • GOLD FUTURES

    2,239.20
    +26.50 (+1.20%)
     
  • RUSSELL 2000

    2,124.57
    +10.22 (+0.48%)
     
  • 10-Yr Bond

    4.2060
    +0.0100 (+0.24%)
     
  • NASDAQ

    16,380.38
    -19.14 (-0.12%)
     
  • VOLATILITY

    13.03
    +0.25 (+1.96%)
     
  • FTSE

    7,952.62
    +20.64 (+0.26%)
     
  • NIKKEI 225

    40,168.07
    -594.66 (-1.46%)
     
  • CAD/EUR

    0.6840
    +0.0035 (+0.51%)
     

Cannabis News: Cash Is King

Many cannabis companies are finding it difficult to raise capital, and it can be challenging for marijuana producers to obtain financing at attractive rates. This is particularly true for smaller growers.

Analysts at Stifel Financial recently highlighted these challenges in a research note. Stifel described how Flowr Corp. (NASDAQOTH: FLWPF), a $275 million Canadian marijuana producer, was forced to use a bought-deal transaction to finance its acquisition of Portugal-based grower Holigen -- at a price approximately 30% below where its stock was trading before the deal was announced after it was unable to complete a secondary offering.

In turn, Stifel believes larger producers with sizable cash reserves -- namely Canopy Growth (NYSE: CGC) and Cronos Group (NASDAQ: CRON) -- will have a powerful competitive advantage over less cash-rich rivals, particularly if rising production levels cause Canada's cannabis market to become oversupplied in the coming years.

Stacks of $100 bills.
Stacks of $100 bills.

Cash will help to separate the winners from the losers in the cannabis industry according to analysts at Stifel. Image source: Getty Images.

ADVERTISEMENT

"We highlight the advantage for both Canopy Growth and Cronos Group (C$3.7 billion and C$2.4 billion of cash on hand, respectively) with each company having the cash on hand to execute their business plan and take advantage of any dislocation in the industry," Stifel said.

All told, Stifel believes investors may be underestimating the future capital needs of cannabis companies, as well as the increasing difficulty in obtaining that capital. As such, alcohol-giant Constellation Brands' $4 billion investment in Canopy Growth and tobacco-titan Altria's $1.8 billion investment in Cronos Group position them well to compete -- and win -- in the increasingly competitive cannabis arena.

More From The Motley Fool

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool recommends Constellation Brands. The Motley Fool has a disclosure policy.