Two industries with potential to create massive wealth for investors in the upcoming decade are electric vehicles (EV) and cannabis. While the EV market is expected to reach a staggering $906.7 billion by 2028, the cannabis market is also expected to double from its current levels over the same period.
However, these up-and-coming industries have been faced with some growing pains in 2023. While the hardest-hit names went completely under, other players have faced questions about their viability, or have taken measures to stay afloat - such as a reverse stock split.
Typically, a reverse stock split is done to stay in compliance with exchange listing requirements, which call for stocks to maintain a share price of $1.00 or higher over a given period. Alternately, it might be done for “cosmetic” reasons, to make the shares look more appealing to investors who may not otherwise consider stocks in the under-$5 or under-$10 range.
Here, we'll take a look at two stocks that just completed reverse splits, and the forecast for these names going forward.
Canopy Growth
Founded in 2014 as Tweed Marijuana, Canopy Growth (CGC) is a Canada-based global cannabis company, operating in recreational and medical cannabis markets with a focus on production, research, development, and branding. They offer a broad range of cannabis products, including dried flower, oils, edibles, concentrates, and vaporizers, under various brands like Tweed, Spectrum Therapeutics, and This Works.
With a market cap of $438 million, Canopy Growth's share price has plunged 78% on a YTD basis.
CGC recently completed a 1-for-10 reverse split to regain compliance with Nasdaq listing rules, and the shares started to trade on a split-adjusted basis on Dec. 20.
The company's latest results for the fiscal second quarter of 2024 fell short of Wall Street's expectations. Although losses narrowed from the previous year to $3.26 per share, they came in much wider than the consensus estimate for a loss of $1.19 per share. Revenues of $50.4 million were also lighter than expected.
Looking ahead, analysts are expecting a revenue decline of 18% for this fiscal year, followed by tepid 2.7% growth the next.
The net debt balance declined slightly during the quarter to $411 million, and the company has paid down roughly $1 billion year to date. However, free cash flow was negative $67 million during Q2.
Analysts have a “Hold” rating on the stock, with a mean target price of $9.47. Out of 11 analysts covering CGC, 1 has a “Strong Buy” rating, 6 have a “Hold” rating, 1 has a “Moderate Sell” rating, and 3 have a “Strong Sell” rating.
Mullen Automotive
Mullen Automotive (MULN), also founded in 2014, is an EV manufacturer based out of Brea, Calif. Formed by the merger of CODA Automotive and Mullen Motor Cars, the company's products include passenger and commercial EVs. Its market cap currently stands at $43.9 million.
Mullen stock has had a miserable 2023, losing almost all its value in the year to drop 99.8%.
The EV company's latest quarterly results were abysmal, as the company's losses widened to $11.14 per share from $4.26 per share in the prior year. Net cash used in operating activities widened to $113.6 million from $43.2 million for the nine months ended Sept. 30.
MULN completed a staggering 1-for-100 reverse split as of Dec. 21 to maintain compliance with Nasdaq listing standards. Previously, Mullen had authorized a massive $25 million share buyback program through the end of this year in an attempt to shore up its share price.
CEO David Michery defended the move in a letter to shareholders, writing, "I did not come to this decision lightly… but in order for the Company to survive and prosper, which is certainly in the best interests of all shareholders, the Company needs to raise capital in 2024 to fund initiatives until such time as it is cash flow positive. Most sources of capital are not willing to provide financing to the Company if it is no longer on a major national exchange. Being demoted to an over-the-counter exchange where market making and trading volumes are significantly lower would put the Company - and hence its shareholders - at great risk."
Plus, Mullen currently has no analysts in coverage, which is yet another red flag for the struggling EV stock.
On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
