The market crashed with a dual blow of the oil crisis and the COVID-19 pandemic. The crash has set off a prolonged bear market phase, with stalled economic activity all around the world.

Vermilion Energy (TSX:VET)(NYSE:VET) is among the many casualties of this market crash. This Calgary-based oil and gas production company has lost around 70% of its stock price in March alone.

Let’s try to understand what happened to Vermilion stock in the fateful month of March, and what the future holds for this company and its shareholders.

Dividend cut proves to be consequential

As if the oil war between the KSA and Russia was not enough, the worldwide lockdowns have crashed the demand of oil and gas to non-existent levels. The compounded effect of this market development pushed the prices of different crude oil variants into a free fall.

This extreme imbalance of demand and supply forced Vermilion to shut down its crude oil production. However, the shutdown of production was not enough, and OPEC hadn’t yet announced the potential production cut either.

However, stopping crude production was not enough to sustain the quickly aggravating economic crisis. Therefore, Vermilion decided to cut its dividend yield in half to take some pressure off this fiscal bind.

This decision led to a whopping 16% fall in its stock price in a single day. Vermilion has experienced several TSX spikes post-2014 oil depression. However, this was the sharpest drop in its entire history since its IPO. As of now, Vermilion stock is hovering around $5 and may not go beyond that for a long time.

Prospects of Vermilion stock

Even when the overall oil market was not doing well, Vermilion was considered a decent stock due to its high dividend yield. However, this has changed with a significant dividend cut. Also, the unprecedented nature of the current events may leave long-lasting effects on the stock. For example, oil prices have never plunged into negative figures before.

All of this has made it difficult for already cash-starving Vermilion to earn investors’ trust back. Right now, the stock is trading at 28 times its projected earnings for the next 12 months with an estimated potential drop of 40.7% in sales this year. The projected sales for 2021 and 2022 are not encouraging either.

Conclusion

The energy sector has entered a gloomy phase for the foreseeable future. It may take years for oil and gas companies to get back to their pre-2020 positions.

The same goes for Vermilion. If you want to buy the dip with a long-term horizon in mind, you can consider Vermilion. If you own VET, it might be better to wait and let COVID-19 play out before selling Vermilion stock.

The post 1 Cheap Energy Stock That Sank From $14 to $4 in March appeared first on The Motley Fool Canada.

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The layoff was a result of the marijuana giant having to shut down 23 of its stores in Manitoba, Saskatchewan, and Newfoundland and Labrador, along with two of its largest cannabis greenhouses in British Columbia.

According to David Klein, Canopy Growth’s chief executive, this was done in order to align “supply and demand” of marijuana.

Industry-wide cutbacks

The legal cannabis industry as a whole is currently facing an oversupply of cannabis ever since the industry was ruled to be non-essential. This disruption in the overall supply chain meant that companies have had to take drastic steps to improve production efficiencies.

Canopy Growth isn’t the first Canadian cannabis producer to take such steps. Just last month, Aurora Cannabis laid off 500 people, Tilray said it would lay off 10% of its workforce, while Supreme Cannabis announced a reduction in its workforce by 15%.

Initially, the downsizing announcement by Canopy Growth was to lay off 200 retail workers, but after seeing the continued impact of the virus all over the globe, this figure has increased to 500.

Klein said that while this decision moves the company in a new direction, the decision was not taken lightly and was a result of the rather fluid policies in effect due to the virus.

As the COVID-19 situation came to light, everyone anticipated that there would be losses and demand would decrease. However, nobody knew how bad the situation would actually get. The decision to lay off workers is solely due to the demand for products requiring refined cannabis — such as edibles and vapes — which has become “lower than anticipated.”

Cash flow is a problem

The market as a whole is being affected gravely by the COVID-19 lockdown, forcing players in the legal cannabis market to adapt accordingly, most of them selling their properties. At the same time, consumers stocked up on legal pot just before the lockdown.

The Ontario Cannabis Store reported more than 4,000 online orders on Sunday, about double of what the retailer experiences on a regular Sunday.

Boutique investment bank for the marijuana industry Ello Capital released a report indicating that Canadian marijuana producers and retailers have a working capital of no more than half a year. Aurora Cannabis was estimated to be at the bottom in that list, having just two months of working capital, followed by Tilray, which had around four months’ worth.

Conclusion

The stock market has been a roller coaster recently with the marijuana industry being no exception. Canopy officials have claimed that with the layoffs and other cost-cutting measures, despite the challenging demand-and-supply curve, the company maintains a “very strong” financial position.

While this statement is in doubt, as cannabis retail shops reopen temporarily in Ontario for curbside pickups and deliveries, there is hope that the demand will start to get back to normal soon.

The post Canopy Growth (TSX:WEED) Lays Off 500 Workers: Bad News for Weed Stocks? appeared first on The Motley Fool Canada.

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In the past, some companies have been deemed so important or interconnected that their fall could actually take the entire country’s economy down with them. Recent examples of huge bailouts were back in 2008, when many of America’s major banks received money from the U.S. government to stay afloat.

Can the same thing be said for Air Canada (TSX:AC)(TSX:AC.B)? Right now, things aren’t looking good for any airline companies. With next to zero revenues coming, there is a high risk of bankruptcy if the crisis continues for a long time.

Does the company deserve a bailout? Let’s take a look at why they should get one, and why they shouldn’t.

The case for a bailout

If you consider just the market cap of Air Canada, the company isn’t too big to fail. It has an enterprise value of just $5.5 billion. But if we look at it from a different perspective, Air Canada is one of the essential businesses in the country.

If there is a bailout package released by the government to reset the airline industry in the country on sure footing, Air Canada is likely to be the first in line to receive it.

And it’s not just the bailout itself. If the government orders a total air space shutdown, Air Canada and other airlines in the country can get a bit of a fighting chance.

One expert suggested a figure between $5 and $10 billion might be needed to bail out the airline industry. But he also claimed that the exact figure would depend on how long the pandemic goes on ravaging the business.

The case against a bailout

A problem with the bailout is that currently, the government is converging all its resources in fighting the pandemic. If it goes on for longer than anticipated, the bailout might not get prioritized and not come well in time.

Air Canada is not as weak as it was in the last recession. After the major restructuring in 2013, the company became much more stable as well as flexible. It strengthened its balance sheet and made significant management changes. And, as a result, the company became one of the best growth stocks in 2019.

Right now, the company isn’t exactly drowning in debt. The December 31, 2019, financial statements show $2 billion in cash and cash equivalents and short-term investments worth $3.8 billion.

In the last recession, air travel surged after the market stabilized a bit, and, in about two years, airlines started to see the usual amount of traffic. But we can’t make an apple-to-apple comparison between a purely financial recession and a market crash driven by a pandemic.

Too big to fail

Air Canada is sitting on a hefty cash reserve and seems well prepared for a long recession. Hopefully, it doesn’t have to come to a bailout. But if Air Canada is desperate and facing insolvency, it’s hard to see the government letting Air Canada go bankrupt.

And that is why I believe that Air Canada is too big to fail.

The post Is Air Canada (TSX:AC) Too Big to Fail? appeared first on The Motley Fool Canada.

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