Shares of Canadian cannabis clinic owner and operator, Canabo Medical Inc. (TSXV:CMM)(OTC:CAMDF)(FRA:ARAH) are down more than 51% year to date, despite opening a total of six new clinics over that period. In addition to opening those six new clinics, Canabo has announced a new partnership agreement with Avivia Medical as well as the results of a study showing reduced reliance on benzodiazepines in Canadian cannabis patients. All this sounds like good news, so why is the stock down so much?
Now, in most businesses, new locations are a good thing (both for the company and for its stock). The traditional logic goes; new store, new customers, more profit. How could more clinics be a bad thing?
One hypothesis for the recent bear market in Canabo shares deals with the impact that Canadian recreational legalization will have on the company and its clinics.
Although not enough data has been gathered yet regarding the impact of recreational legalization on medical sales, it has been hypothesized that recreational marijuana cannibalizes some portion of the medical market. If this is the case, it's easy to come to the conclusion that Canabo would be hurt given that their business model revolves around medical referrals. If patients seek to obtain their medical cannabis through recreational channels instead, Canabo and other clinic operators could be cut out of the value chain completely.
Aphria Inc. Investment, Divestment, Investment and Divestment Again
In December of 2016, Aphria Inc. (TSX:APH)(OTC:APHQF)(FRA:10E) invested $8.4 Million CAD for 16.6% of Canabo (6 Million shares). One condition of the deal was that 'all of the securities issued pursuant to this offering will have a hold period expiring four months after the closing date'. In plain English, this means Aphria wasn't allowed to sell any of the 6 million shares until April 22nd, four months after the closing date of the offering.
This wouldn't have been a problem, but Aphria sold 500,000 shares of Canabo on March 8th, 2017, well before the end of the hold period at $0.70 CAD per share. To undue the mistake of selling before the hold period expired, Aphria bought back the 500,000 shares they sold at $0.74 CAD. This mistake led to a loss of $20,000 CAD for Aphria.
Now, the premise of this article is not to comment on Aphria's trading ability or lack thereof but this error is an interesting part of the recent woes at Canabo (and relating woes at Aphria). One has to wonder, why did Aphria try and sell the Canabo shares in the first place?
Yesterday, Aphria disclosed that the company sold 2,500,000 shares of Canabo on May 10th, realizing a loss of $2,350,000 CAD (~ $1,714,090 USD). It would appear that even Aphria is losing confidence in the stock.
Only time will tell if this is a buying opportunity in Canabo or if there's more pain to come, but honestly things aren't looking too optimistic in the land of Canabo Medical. One thing is certain, we'll be sure to keep you posted regarding any further developments in Canabo. Be sure to subscribe to one of our free newsletters so you never miss an important update!
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