News coverage can move the stock – but can there be too much of a good thing?
In an industry with such a large retail following, news coverage and press releases matter. The cannabis industry has garnered countless column inches and hours of airtime during the last couple of years, and public cannabis companies face a fight to keep themselves relevant, visible and attractive to potential retail investors.
It’s also true that if a company issues too many press releases with little or no substance, its credibility will take a hit. Similar to the fate of the boy who cried wolf, several commentators suggest that companies that issue too many releases will struggle to get their most meaningful news picked up in the future. ‘There are 300 cannabis companies,’ Lepore says. ‘Imagine if you’re an investor and you’ve got 300 companies all putting out a press release every week. How do you keep up with that?’
One interviewee who wished to remain unnamed likened the issuing of press releases to the issuing of currency during a recession: you can print more money, but you risk diluting your message. This is the challenge for some IR teams that are working with executives who lack public company experience – the executives may be too focused on the stock price and what they can do in the short term to influence it.
‘If you’re just putting out news because you think it’s going to support your liquidity, it’s like yelling 'Fire!' in a crowded theatre,’ says Goldberger. ‘I understand that people are trying to gain exposure, but it’s a fool’s game to play. Just be thoughtful and don’t succumb to the pressure of others.’
Even so, the speed of change, the volume of transactions that are taking place and the rate at which new analysts are initiating coverage do merit a significant number of press releases throughout the year. IR Magazine looked at the number of press releases sent by a selection of cannabis companies between January and the end of August 2019 and found that several cannabis firms had sent more than 40 press releases in the first eight months – significantly more than most companies would issue in an entire year.
And news coverage really can make a difference in the cannabis sector, according to Burns. He says that in late 2017, the chief investment officer of Bank of Montreal was quoted as saying that the bank would be paying closer attention to the cannabis sector. ‘There was an immediate price reaction, as well as follow-up articles from brokerages that were having trouble keeping up with the requests from investors,’ says Burns. ‘There were backlogs!’
Burns adds that it’s not just investors that struggle with the volume of press releases that are issued: analysts covering the industry also have their work cut out.
‘I’ve found that it demands a more active line of communication with sell-side analysts to help them see the forest through the trees,’ he says. ‘It’s a much more active role than I’ve played at any other company. There’s an opportunity to be more precise with evaluating the figures coming out of the sector and the sell side is becoming more discerning about the information it’s reading.’
Ron Parham, senior adviser at Arbor Advisory Group, is a former NIRI chair who spent 15 years working at Nike and 10 years at Columbia Sportswear before migrating into the cannabis industry, first as an IRO with a pre-public cannabis company and now as an IR adviser. He says one of the most interesting aspects of the cannabis industry is how rapidly the best practices around disclosure have evolved.
‘In the early days (two years ago) it was all about funded capacity: how much funding do you have and how much cultivation capacity build-out can that support?' Parham explains. 'That was important because it was about laying the foundation for future revenue.
‘Now that companies are producing and cultivating in some quantity, people are talking about new metrics such as yield per acre and cost per gram. It’s interesting because it goes way beyond what some industries would disclose. Because the industry is so new and the investment community is people trying to get their arms around those metrics, they’re being disclosed.’ Parham adds that it’s incumbent on the IR representatives at cannabis companies to play a leading role in creating an appropriate disclosure framework schedule that gives covering analysts the information they need for their company’s unique business model.
‘I think there is a lot of opportunity for experienced IROs to help create a disclosure regime,’ he says. ‘The IRO is really in the middle of that – it hasn’t taken long for the investment community to move beyond wanting more granular metrics that go well beyond just cash flow, burn rate and return on invested capital.’
Goldberger agrees. ‘There is a responsibility as a publicly traded company to act like the firm you aspire to be,’ he says. ‘If anything, over-report – be as transparent as possible.’
