Week 20

Update for Cannabis Industry between March 30th and April 3rd.

I looked into almost every Canadian cannabis producer and wanted to know how much cash they are sitting on.

I found out that most of the companies have very different approaches when it comes to very liquid assets.
You will see that some of them have almost 10 times (Cronos Group Inc) of their total net sales, and some of them have as low as 3% (Organigram Holdings Inc) of their net sales.

What could explain this?

I think it is a bit straight forward as cash, in my eyes, is seen as an operational Flexibility and M&A. A large cash pile allows firms to seize immediate opportunities, such as acquiring smaller competitors or investing in new technology (e.g., AI) without waiting for bank loan approvals or public market fundraising.

To all of this, there is of course a downside - High Opportunity Cost. Holding cash in a bank account typically yields much lower returns than investing it in new projects, acquiring other companies, or returning it to shareholders via dividends. Also, when you hold low amount of cash, it also represents an aggressive growth strategy. In other words: High-growth, unprofitable companies may burn through cash rapidly in R&D, leaving them with low, or rapidly depleting, reserves. They rely on frequent fundraising rather than accumulated reserves.

We are mostly used to see that Retailers hold low amount of cash, while Paratheatrical companies hold loads of it due to R&D reasons as well. 

BUT because this is the Cannabis industry, it is WAY HARDER to obtain a reasonable loan from a bank, so holding cash can be very strategic as interest rates are quiet high than to any other "normal" industry. This leads me to believe that operating a company that has low amount of cash in the cannabis space, may not be seen as attractive as during rough times they would suffer a lot more compared to other companies which are "less leveraged" or simply have more cash to survive.

Here is the breakdown of the companies as well as sources:

As far as for M&A, Organigram has announced the acquisition of Sanity Group GmbH which is a German pharmaceutical company, specialized in cannabis. As it is a private company, there was not much information about it so far. I will be monitoring it for future updates.