Among the hype and the frenzy of the post-Constellation Brands cannabis boom, the marijuana stock market appears to have its first legitimate IPO bust of the year, or in this case an RTO. Canopy Rivers Corp (CVE:RIV) after a few down trading sessions, is down nearly 50 percent from its post-RTO high of over $8.00 per share, leading some experts to wonder if it’s a case of bad timing or a sign of bigger things to come for the industry.
At the time of their RTO on September 20, industry insiders argued that market conditions were near-perfect for the company, with market technicals and investor sentiment set to combine with what some called the best-structured RTO of the year. As Benjamin Smith of Midas Letter pointed out, the day Canopy Rivers began trading, the Horizons Marijuana Life Sciences Index ETF (TSE:HMMJ) peaked at $25.95 per share. Canopy closed out day one at $8.75 a share, nearly 250 percent over their implied price of $3.50 in their final round of financing.
So what went wrong?
Despite becoming the most the most active major exchange-listed cannabis debut this year (via IPO or RTO) at 18.33 million shares traded, Canopy saw what was once considered a perfect market vanish quickly. Again, according to Smith, two major events have affected the bottom line for Canopy Rivers — HMMJ fell over 11 percent, a sign that the market is pulling back, and all of those FOMO investors that jumped into cannabis stocks after Constellation Brands made their big investments decided to cash out.
For example, on Tuesday Canopy Rivers closed at nearly $6.00 per share which represents an over 70 percent return on investment. With all the talk of an impending bubble, it’s hard to argue with investors who don’t want to stick it out for the long-term right now.
Smith also argues that Canopy’s assets may be overvalued (what isn't in the cannabis stock market these days?) though he stops short at putting a true value on the company. Their biggest holding — 11 million common shares of TerrAscend Corp plus 9 million warrants is worth roughly $150 million with TerrAscend at a closing price of $7 per share. Whatever Canopy’s value, the initial billing at $1.75 billion feels a bit steep to Smith.
On the one hand, the company is a part of Canopy Growth and has all of the premier access that comes along with that. However, it may be a sign that cooler heads are prevailing in the market today. Either way, this one may be one to wait on for right now.