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Cannabis Professional’s daily roundup of industry news. View archive here.

The early hours of this Wednesday in weed have already been quite busy, with Green Growth Brands cutting dozens of employees, analysts further cutting expectations of CannTrust, Supreme Cannabis beating Q4 profit expectations, Quebec recalling more than 16,000 packages of HEXO product, Eight Capital launching coverage of Lexaria and cannabis spot prices climbing overall.

– Jameson Berkow

Eight Capital expands biotechnology coverage, initiates Lexaria with ‘buy’

Eight Capital said it initiated coverage of Lexaria Bioscience with a “buy” rating and $1.20 target price. This marks the investment dealer’s second sign of optimism related to cannabis biotechnology in the past week, following its coverage of Willow Bioscience.

Kelowna, B.C.-based Lexaria plans to “out-license” its drug delivery technology DehydraTECH, which improves the biological delivery profile of several active ingredients. The plan is to licence this out to cannabis and hemp-CBD companies, as well as oral nicotine and other industries with the goal of generating high-margin, royalty revenue streams, Eight Capital said.

Last week, Eight Capital initiated coverage in Willow Bioscience with at $4.50 target price. This Calgary, Alta.-based company, which is at the research and development stage with cannabinoids by leveraging its opioid biosynthesis experience, is seen having the potential to transform the cannabinoid production industry with methods that are faster, cheaper and of higher quality than currently available.

Although Lexaria’s research is in the early stages, Capital Eight said in a note that “a number of catalysts” should raise the company’s stock price over the next 12 to 18 months.

Lexaria has more than 60 patents pending that have generated licences with nine customers. Altria Group Inc. will ultimately have the option to buy out 100 per cent of Lexaria Nicotine. Additionally, Several of Lexaria’s licence partners are expected to start generating revenues within the next 12 months, which could provide some de-risking, Eight Capital said.

– Marcy Nicholson

Canada Cannabis Spot Index price rises to six-week high, U.S. price climbs marginally

The average selling price of legal cannabis by licensed producers in Canada rose to a six-week high while it climbed slightly in the United States, Cannabis Benchmarks data show.

Canadian spot prices were roughly 78 per cent higher than those in the United States, according to the data.

The Canada Cannabis Spot Index rose to $7.22 per gram last week, up 6.3 per cent from the prior week, according to a report compiled by Cannabis Benchmarks, a division of U.S.-based New Leaf Data Services that started tracking wholesale prices here in December, 2018. The reason for the price hike, which includes federal and provincial taxes, was not provided.

The increased Canadian price came as legal pot supplies improved from the national shortage that started in late-2018. Additionally, the industry is just weeks ahead of the legalization of concentrated products, for which many licensed producers are preparing by making edible and vaping items. These products require cannabis extracts.

The U.S. Cannabis Spot Index rose 1.1 per cent to US$1,389 per pound, or US$3.06 (C$4.05) per gram. This was up from US$3.03 the previous week. The simple average price was higher at US$3.53 (C$4.68), versus US$3.52 the week prior.

– Marcy Nicholson

Green Growth Brands cuts staff as analyst cuts target

Columbus, Ohio-based multi-state cannabis operator Green Growth Brands has terminated dozens of employees in an effort to cut costs.

First reported by the Columbus Dispatch earlier this week, a company spokesperson told the local paper the cuts were part of an “effort to be prudent and responsible with expenses.” Roughly 50 positions have been eliminated, the company said, representing five per cent of its approximately 900 employees.

Green Growth, which is backed by the billionaire Schottenstein family, has been making acquisitions and raising money at a rapid pace in recent months. In July, the company purchased Moxie Cannabis parent company MXY Holdings in an all-stock deal worth US$300-million in total. That deal gave Green Growth access to THC-based products, as most of its existing portfolio remains focused on non-intoxicating CBD.

Last month, Green Growth announced plans to raise nearly $200-million through a combination of bought deals, convertible debentures and debt financing.

On Wednesday, Eight Capital analyst Jenny Wang cut her price target on the company’s Canadian Securities Exchange-listed stock to $5 per share from $8.50 previously amid ongoing operational and expansion delays. Listed under the ticker “GGB”, the shares closed Tuesday at $1.66 each.

– Jameson Berkow

CannTrust licence suspension raises analyst concerns

While the Health Canada decision announced Tuesday to partially suspend the licence of beleaguered cultivator CannTrust “partially lifts the veil on regulatory uncertainty,” Graeme Kreindler is no less concerned about the company’s future.

Maintaining a ‘sell’ rating on the company’s TSX and New York Stock Exchange-listed stock, the Eight Capital analyst told clients Wednesday morning there remained little reason to believe a turnaround in CannTrust’s fortunes would be coming soon.

“We hesitate to suggest there is a robust market for potential suitors for M&A or strategic investment given the expected regulatory burden an acquirer would inherit, as well as reputational damage likely affecting the Company’s ability to secure additional capital, if needed,” Mr. Kreindler said.

CannTrust had $250-million in cash as of late June, his report notes. However, the analyst warns “the inability to sell product, along with probable outlays including legal/professional fees, lawsuits, maintenance capex and employee severance, present burdens on the balance sheet that will likely erode its value over time.”

BMO Capital Markets analysts Tamy Chen and Peter Sklar placed their CannTrust rating and target under review late Tuesday evening. Having previously rated CannTrust stock a “buy” with an $11-per-share price target, BMO lowered its rating and target to “hold” and $6-per-share in July when the company first disclosed its non-compliance.

“At this point, it is difficult for us to assess the eventual regulatory outcome (whether Health Canada ultimately revokes or reinstates CannTrust’s licenses),” the BMO analysts told clients in their latest note. “As a result, we are placing our rating, target, and estimates for CannTrust shares Under Review pending further clarity from this development.”

CannTrust stock closed Tuesday at $1.70 per share in Toronto and US$1.29 per share in New York.

– Jameson Berkow

Supreme Cannabis beats Q4 profit expectations

Fourth-quarter results from Toronto-based licenced producer Supreme Cannabis have beaten analyst expectations.

The company pre-announced much of its quarterly disclosures last month, but Eight Capital analyst Graeme Kreindler noted one positive surprise in the formal results published after markets closed on Tuesday. Earnings before interest, taxes, depreciation and amortization (EBITDA) were higher than he or any of his Bay Street colleagues were expecting.

“Adjusted EBITDA of $3.2[-million] was a significant beat on our estimate [$500,000] and consensus of [$700,000],” Mr. Kreindler told clients in a note published early Wednesday.

Higher-than-expected adjusted gross margins of 59 per cent (versus Eight Capital’s estimate of 47 per cent for the quarter), along with lower labour costs led to the beat, the analyst said.

He maintains a ‘buy’ rating on Supreme’s TSX-listed stock and a $3-per-share price target. Given Supreme shares closed Tuesday at $1.38 a piece, Mr. Kreindler is expecting an investment made today in Supreme to more than double in value over the next 12 months.

In his own note to clients early Wednesday morning, GMP Securities analyst Robert Fagan specifically referred Supreme’s Q4 adjusted EBITDA figure as “nice” while maintaining his own ‘buy’ rating and $3.25-per-share price target.

- Jameson Berkow

Quebec recalls thousands of mislabelled HEXO packages

Cannabis consumers in Quebec might not be in possession of the products they intended to purchase.

Gatineau-based licenced producer HEXO notified Health Canada of a labelling issue, who in turn notified the Société québécoise du cannabis (SQDC), the provincially-owned retailer in Quebec. The SQDC announced 16,818 packages of HEXO’s HELIOS strain of cannabis flower would be recalled for potentially containing BAYOU instead of the strain listed on the label.

Lot number AAA-112502 which was sold between August 27 and September 6, 2019, is specifically subject to the recall.

In a statement, Health Canada said it had “not received any complaints regarding the recalled lot. No reports of adverse reactions to these products have been reported to HEXO or Health Canada.”

BAYOU has an average THC potency of around six per cent, which is around half that of HELIOS, meaning customers who purchased BAYOU labelled as HELIOS will, at worst, find the product weaker than they might have otherwise expected.

– Jameson Berkow

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