LAST week began with a number of European cannabis stocks levelling out following dramatic declines days earlier in reaction to Russia’s invasion of Ukraine.
While many saw a slight recovery throughout Friday and Monday, the worsening crisis and ever-expanding list of Russian sanctions continued to drag on stock prices across the market.
How the Ukrainian Crisis is Impacting Cannabis Stocks
Investors across the market have flocked to place their cash in traditionally risk-averse stocks since the war broke out on Thursday, but there are many potentially longer term impacts on the cannabis sector that are causing concern for traders.
Weeks before the build up of Russian troops on its border became its all-encompassing focus, Ukraine was in the process of legalising medical cannabis.
In January, BusinessCann reported that the country’s one-tier parliament – the Verkhovna Rada of Ukraine – was set to consider a bill proposed by its Cabinet to permit the use of medical cannabis to over two million patients.
Although Ukraine, which before 1950 was a world leader in Hemp cultivation, was in the early stages of the legalisation process according to Ukrainian cannabis company AskGrowers, its timeline has now been pushed back considerably or wiped out entirely.
With the pandemic already causing conversations about cannabis liberalisation to be pushed back across Europe, the immediate threat of war across the continent will again see the cannabis agenda be pushed down the list of priorities.
A more immediate concern for the existing cannabis industry is the potential impact of gas, oil and energy price hikes due to the unprecedented sanctions on Russia.
Around 40% of European electricity comes from power stations which burn fossil fuels, while around 40% of natural gas and 25% of the EU’s oil comes from Russia.
This is expected to see the already rising cost of energy skyrocket, with Reuters reporting this week that prices have already begun breaking records.
As EU-GMP certified medical cannabis is required to be grown in-doors, requiring massive amounts of electricity and water, cultivators across the continent are in danger of seeing their margins impacted significantly.
With petrol prices also hitting record highs, the industry’s complex supply chains could also be impacted, tightening the noose further around companies’ margins.
Tilray and Hexo
Last week also saw some major developments in the North American market, as one of the world’s largest cannabis operators Tilray purchased $211m of its rival Hexo’s debt.
Tilray, which despite being headquartered in Canada has operations spanning much of Europe, announced the unexpected move on Thursday.
The deal will give Tilray the option to acquire a significant portion of its embattled Canadian rival, which has seen its stock drop more than 90% over the past year.
The news saw Hexo’s shares jump nearly 20% on Thursday, levelling out to a more subdued 5% rise throughout the rest of the day.
Meanwhile Tilray’s stock has fallen nearly 7% following the news of the deal.
The oil and gas company turned CBD retailer had another difficult week on the stock market, seeing its share price fall off a cliff on Friday.
Chill Brands’ stock fell nearly 40% on Friday after it released a statement informing investors that the previously announced ‘supply chain delays’ has had a potentially substantial impact on its reported revenues.
Just weeks ahead of its financial year end on March 31 2022, Chill said that the $1.2m in revenues it reported during its interim statement on January 28 2022 may in fact be up to $1m less.
“As a result of supply chain delays, previously announced additional orders valued at approximately US$1,000,000 may not all become recognisable revenue by the end of the current financial year.”
Though it assured investors that it was ‘actively seeking to onshore the manufacturing of its products’ through a new strategic partnership, it did little to quell fears that further declines could be on the way, with many investors seeing this as a sign that its full-year results could be well below its previous guidance.
The LSE-listed biopharma company was one of the few to see its share value tick up last week.
This was in part due to the release of its interim results, which saw it report its strongest ever revenues, helping dig its share price out of historic lows.
However, further rises were muted as MGC revealed growing operating losses, which increased some 30% to $7.5m in the second half of the year.
In light of the increasing outflow of cash, despite the considerable increase in revenues, MGC says it may require a further capital raise some time in 2022 in order to maintain its operations.
This follows a $10.4m cash raise in November last year, which it says has gone towards funding the potentially transformative Emergency Use Authorisation of its Covid compound in a number of key markets.