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Cannabis stocks: Major players see a pickup amid FDA warnings

The stocks of major cannabis companies appear to be picking up after seeing a drop following FDA warnings over the safety of cannabidiol (CBD) products. The FDA issued warnings to 15 companies on Monday regarding the illegal sale of CBD products as food additives or dietary supplements.

The FDA said there was insufficient evidence to back up the safety and efficacy of CBD products and therefore they could not be approved. The agency also raised concerns over the presence of pesticides in CBD and also over products being marketed to children. Some of the negative side-effects of CBD usage include sleep disruption and abdominal pain.

Image for representation only/Photo Courtesy: Rex Medlen from Pixabay

Stocks of leading players – Cronos (NASDAQ: CRON), Tilray (NASDAQ: TLRY) and Aurora Cannabis (NYSE: ACB) fell on Tuesday following the news but now seem to be slowly picking up. Shares of Cronos were up 1.4% during morning trade on Wednesday while Aurora Cannabis’ stock gained 4%. Tilray’s shares were also up 1.3%.  

The FDA said it will release more updates over the weeks to come and there is optimism that this will help weed out the unauthorized players bringing in more transparency.

Also read: Cronos Group Q3 2019 Earnings Call Transcript

In its most recent quarter, Cronos posted a sharp increase in revenues helped by the launch of the adult-use market in Canada and the inclusion of the Redwood business. The company also delivered a profit compared to a loss in the prior-year period. Revenue totaled CAD12.7 million and earnings amounted to CAD0.53 per share.

In the third quarter of 2019, Tilray reported a 409% growth in revenue to $51.1 million, fueled by the Canadian adult-use market, the Manitoba Harvest acquisition and growth in international medical markets. Loss widened to $0.36 per share.

In the first quarter of 2020, Aurora posted a 154% jump in revenues, driven by higher cannabis production and sales. Earnings fell by 90% to $0.01 per share due to higher costs.

An industry report states that total legal sales of cannabis in the US are projected to grow at a CAGR of 14% over the next six years, reaching around $30 billion by 2025.

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