The furious rally in cannabis stocks took a breather Tuesday after the largest public company in the legal Canadian market posted another quarterly loss.
Canopy Growth Corp. more than doubled its second-quarter revenue to $17.6-million. But, for the fourth straight quarter, sales came in below the average estimates of analysts on Bay Street. Despite its growing revenue, Canopy reported a loss of $1.6-million for the quarter ended Sept. 30.
Shares of the Smiths Falls, Ont.-based company fell 2.1 per cent to $19.96 on Tuesday, as investors took some money off the table. Canopy wasn't alone, as shares of many cannabis firms fell early in the day but pared some of those losses during the trading session.
MedReleaf Corp.'s stock was down as much as 13 per cent but closed down 9 per cent. CannTrust Holdings Inc. decreased 2 per cent, while Aphria Inc. erased most of its losses to fall 1 per cent.
The sector-wide slump on Tuesday came one day after Vahan Ajamian, an analyst at Beacon Securities Ltd., warned that he was "concerned about the potential for a 'profit taking-led' pullback in the event [Canopy] misses consensus again" and also downgraded Canopy's stock to "hold" from "buy."
Not every marijuana firm was caught in the selloff. Aurora Cannabis Inc. jumped 7 per cent, Cronos Group Inc. rose 11 per cent and Newstrike Resources Ltd., the penny stock backed by members of the Tragically Hip band, increased 7 per cent.
The entire sector has been on a tear of late, as Canada moves to legalize the recreational use of marijuana within the next year. Since September, the average pot stock has gained 54 per cent, Mr. Ajamian wrote in a report published on Monday.
Retail investors have been flooding the industry in a bid to cash in as the legal market for marijuana grows in Canada. But these stocks have been volatile bets.
Tuesday's pause follows a meteoric rise in Canopy's shares that has catapulted its market cap to $3.8-billion.
During the past two months, the stock more than doubled in value, pushing the price of Canopy's shares well beyond even the most aggressive targets on the Street. It's 52-week low, however, is below $7.
Companies have been jostling to gear up for when Canada allows the recreational use of the drug next summer, spending millions in marketing and adding to their growing space to beef up their inventory.
Canopy is getting ready for legalization by investing to bolster its brands of cannabis and expanding its production into new provinces. It also has its sights set on growing beyond Canada's borders and into markets that include Denmark and Jamaica.
Last month, Constellation Brands Inc. signed a deal to acquire a nearly 10 per cent stake in Canopy for $245-million.
"The company, I think, is doing what we usually do, which is driving ahead, looking out a year, 18 months and making sure we're doing the actions today that establish us as the continued leader," Bruce Linton, Canopy's chief executive officer, said in a conference call with analysts.
The company was selling marijuana for an average price of $7.99 a gram in the second quarter. This has grown from $7.01 a gram a year earlier and $7.96 per gram in this year's first quarter.
It sells 40 varieties of the drug to serve medical patients through brands including Tweed and Leafs by Snoop. It sells dried cannabis, oils and gel caps.
It had more than 63,000 patients registered as of Sept. 30. It had 24,000 clients a year ago and 59,000 as of June 30.