/Posthaste: A good argument for living in your parents’ basement — and the falling knife called Cannabis

Posthaste: A good argument for living in your parents’ basement — and the falling knife called Cannabis

Good Morning!

Cannabis stocks continued to slide in premarket trade today after two major producers Canopy Growth and Aurora plunged yesterday after missing expectations. Aurora was down more than 8% this morning and Canopy, about 2%. So where are cannabis investors to turn? Cannabis has been in a eight-month long bear market that has seen the North American Marijuana Index shed almost 60% of its value. Financial Post’s Victor Ferreira points out that investors have repeatedly tried to call a bottom but instead ended up catching a falling knife. “Every time you think we’ve seen most of the bad news, along comes comes something like today with Canopy,” said PI Financial analyst Jason Zandberg told the Financial Post. “It’s almost impossible to pick where the very bottom is because it doesn’t become a function of valuation, it becomes a function of fear and panic when the stocks are being sold off.” Zandberg expects the selling to continue through to the end of year as investors dump their stock in tax-loss selling. January could bring a turn in the market with the rollout of edibles, vapes and extract products.

 Here’s an argument for living in your parents’ basement. Online real estate company Zoocasa did a study comparing condo rental rates in Toronto with the costs of buying. The study calculates the minimum down payment needed to buy the average condo in each of 35 Toronto neighbourhoods and the number of months of rent equal to that. In Toronto overall you would need to save the equivalent of 14.7 months of rent to come up with the minimum $37,807 down payment on a $628,074 condo. In the cheaper neighbourhoods on the eastern and western edges of city such as West Hill, Centennial Scarborough, Malvern, Rouge, Black Creek and Rexdale, it would only take 12 months of rent. In three neighbourhoods, Rosedale-Moore Park, Yorkville, and York Mills, you’re looking at 25 months’ worth of rent to come up with a down payment. Renting a one-bedroom condo in Toronto rose 4.5% to $2,262 a month in the third quarter of 2019; the cost of a two-bedroom is up 4.2% to an average of $2,941. A Zoocasa survey also found 76% of renters say anxiety over rising home costs has negatively impacted their mental health at least once in the past year. No wonder Toronto has the highest percentage in the country (47.4% according to Statistics Canada) of young adults aged 20 to 34 living with their parents. 

Here’s what you need to know this morning:

  • Bank of Canada Deputy Governor Timothy Lane will participate in a panel discussion at the Federal Reserve Bank of Philadelphia at 9 a.m. ET
  • Premier Jason Kenney addresses the Rural Municipalities of Alberta 2019 convention
  • Canadian Real Estate Association expected to release home sales figures for October
  • Notable earnings: Alcanna
  • Today’s data: Canadian international securities transactions, U.S. retail sales

Well, that’s a buzz kill. As the chart below shows it’s been a rough six months for the top four cannabis companies. Canopy Growth and Aurora Cannabis were the latest to take a tumble yesterday after earnings failed to meet expectations. Aurora fell 9% after hours after reporting sales into the Canadian recreational market fell 33%. Canopy plunged to a record low on the U.S. market after reporting its biggest dive in revenue since marijuana was legalized in October, 2018. Canopy revenue dropped 15 per cent to $76.6 million in the second quarter, leading CEO Mark Zekulin to tell analysts on the conference call that it was “increasingly unlikely” the company will hit its Q4 milestone of $250 million in revenue. “The last two quarters have been challenging for the Canadian cannabis sector as provinces have reduced purchases to lower inventory levels, retail store openings have fallen short of expectations, and Cannabis 2.0 products are yet to come to market,” Zekulin said. So are better times ahead?

— Please send your news, comments and stories to [email protected]. — Pamela Heaven @pamheaven

With files from The Canadian Press, Thomson Reuters and Bloomberg


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