/Posthaste: Loonie to nosedive to 72 cents as resilience fades

Posthaste: Loonie to nosedive to 72 cents as resilience fades

Good Morning!

Once again cannabis producers are taking it on the chin. Yesterday Green Organic Dutchman Holdings Ltd. fell 24% to a record low after reporting it was looking at alternative financing options to finish construction projects in Ontario and Quebec after unsuccessful discussions for commercial bank facilities and equipment leasing.

Then this morning Canadian cannabis producer Hexo Corp. said it was withdrawing its financial outlook for 2020, sending the stock down 13% in premarket trading. “Fourth quarter revenue is below our expectation and guidance, primarily due to lower than expected product sell through,” said Hexo CEO Sebastien St-Louis in a statement. “Slower than expected store rollouts, a delay in government approval for cannabis derivative products and early signs of pricing pressure are being felt nationally. The delay in retail store openings in our major markets has meant that the access to a majority of the target customers has been limited.”

Last Friday Hexo said its CFO had resigned effective immediately, leading Bank of America Merrill Lynch to downgrade the stock. Hexo will report complete financial results for the year ended July 31, 2019 on Oct. 24.

The loonie has had a good year, rising despite the price of oil remaining mostly unchanged. But don’t look for that to last in the final quarter, Capital Economics market economist Simona Gambarini predicts. Capital expects the currencies of Canada, Australia and New Zealand to drop 3% to 5% as a sell-off in global stock markets in the last quarter sends investors back to the safe haven of the greenback. That would put the Canadian dollar at 72.99 US cents. (today’s it’s 75.10). Capital sees the three currencies stabilizing in the new year, but gains will be small mostly because expectations for interest rates will work against them. Capital forecasts the Fed to only cut another 25bp by the end of 2020, much less than the 80bp of cuts currently priced in the markets. As a result the Canadian dollar should end 2020 at 75.75 US cents, about where it is now.

Cannabis has been legal for almost a year, and Canadians appear to be warming up to the idea. Online real estate site Zoocasa found in a recent survey that 43% of respondents agreed they would be comfortable with a marijuana dispensary operating near their home, compared to 31% who indicated that last year. Mind you, much depends on whether you own the property. 56% of renters agreed they would be comfortable, compared to just 36% of homeowners. The stigma around growing cannabis at home also eased. Asked if even a legal amount of the drug grown on the premises would dissuade respondents from buying it, 48% of Canadians agreed, down from 52% in 2018.

Here’s what’s you need to know this morning:

  • French-language federal leaders debate at 8 p.m. ET
  • Ontario’s Minister of Finance Rod Phillips looks at the state of the province’s fiscal outlook and the government’s plan for Ontario.
  • Canadian Wind Energy Association 35th annual CanWEA conference and exhibition in Calgary
  • Corporate events: Onex Corp. holds investor day
  • Notable earnings: Delta Air Lines
  • Today’s data: Canada new housing price index, U.S. CPI

Ouch, did you get burned? Since recreational cannabis became legal almost a year ago (Oct. 17) shares of the initial top 10 Canadian cannabis producers by market cap have yielded an average negative return of more than 57%. Six of those 10 lost at least half their value, and only one, Cronos Group, has actually grown its market cap. Before legalization, writes the FP’s Victor Ferreira, stocks soared on promises of massive growth and the momentum of retail investors coming on the scene. As the chart below shows that rush is over, and according to GMP portfolio manager Chris Kerlow, it is unlikely to return. “I think many investors are now over (cannabis),” he said.


— 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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