The Globe and Mail reports in its Tuesday, Oct. 23, edition that debt rating agency DBRS on Monday issued a warning about the financial strength of Canadian cannabis companies, arguing that even the biggest among them should have "junk" ratings and that many licensed producers are likely to fail.
The Globe's Tim Kiladze writes that Monday saw the worst day of trading in weed stocks this year. DBRS released an analysis of the cannabis sector's credit risk that provides a sober look at the industry -- in contrast to the lofty expectations of equity investors in the lead-up to the legalization of recreational marijuana last week.
DBRS said, "Although the development of the sector may benefit all licensed producers [LPs], not all will perform equally and many will fail." It added that the sector's credit quality is currently low. "At the outset, DBRS believes that the largest LPs in the cannabis sector exhibit characteristics consistent with the low, non-investment-grade [or 'junk'] range of the credit ratings spectrum -- in the B range." A "B" rating is two notches below investment grade.
Cannabis stocks tumbled sharply on Monday, extending a slide from last week.
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