The Cann Group share price getting smoked after a strategic shareholder exits

The Cann Group Ltd (ASX: CAN) share price got smoked today on news that a major shareholder and partner sold out of the stock.

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The Cann Group Ltd (ASX: CAN) share price got smoked today on news that a major shareholder and partner sold out of the stock.

Shares in the medicinal cannabis group tanked 7.1% to 39 cents in after lunch trade when the S&P/ASX SMALL ORDINARIES (Index: ^AXSO) and S&P/ASX 200 Index (Index:^AXJO) gained around 0.1% each.

Investors dumped the stock after Aurora Cannabis Inc (TSE: ACB) informed Cann Group that it sold its 11.84% shareholding in the ASX company.

Cann Group share price takes a blow

The sale was done via off-market trades to a small number of undisclosed buyers after the market closed on Friday.

Management tried to appease shareholders by stating that Aurora’s decision to sell down the shares was “consistent with Aurora’s current strategic priorities”.

It also added that Aurora’s exit won’t have an impact on Cann Group’s business plans. Cann Group remains focused on developing a growing and diversified supply base with B2B customers in Australia and overseas.

Off-take partner exits right

But investors aren’t listening. Aurora isn’t only a substantial shareholder, but it’s also a partner as it signed a five-year off-take agreement with Cann Group in March 2019.

Under the agreement, Cann Group will supply good manufacturing practice (GMP) processed dry flower, extracted resin and medicinal cannabis products to Aurora, which is one of the world’s largest cannabis companies.

No commercial details were released then but it’s believed to include a price review mechanism. It also allows for the inclusion of new products that the group develops.

No sugar coating the Cann Group share price fall

It’s interesting that Aurora said the sale of its remaining holdings in Cann Group was inline with its strategic priorities. Back when it struck the off-take agreement with Cann Group, the CAN share price was trading at around $2 a share.

It looks like Aurora decided to bite the bullet and crystalise the loss. That perception won’t help confidence in the Cann Group share price.

Let-down effect

But Cann Group isn’t the only stock that’s fallen out of favour with the market. In fact, the ASX medicinal cannabis sector is nursing a big hangover as it comes off a high.

The Thc Global Group Ltd (ASX: THC) share price and Creso Pharma Ltd (ASX: CPH) are also among the fallen angels.

The sector serves as a warning about how dangerous it can be to be buying hype ahead of fundamentals, even though medicinal cannabis is a real industry.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. Connect with me on Twitter @brenlau.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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