Pot-stock earn­ings should cast light on win­ners, losers

Four com­pa­nies set to re­port their first quar­terly re­sults since le­gal­iza­tion


Four of Canada’s largest pot com­pa­nies re­port earn­ings this com­ing week, and while it’s too early for any post-le­gal­iza­tion num­bers, ex­ec­u­tive com­men­tary should be­gin to di­vide the win­ners from the losers.

Au­rora Cannabis Inc. will re­port pre-mar­ket Mon­day, fol­lowed by Cronos Group Inc. on Tues­day morn­ing, Til­ray Inc. post-mar­ket Tues­day and Canopy Growth Corp. on Wed­nes­day morn­ing. It will be the first chance for many an­a­lysts and in­vestors to hear from ex­ec­u­tives since Canada le­gal­ized recre­ational cannabis use on Oc­to­ber 17, a move that was im­me­di­ately fol­lowed by sup­ply short­ages across the coun­try.

Any com­men­tary on post-le­gal­iza­tion sales and the sup­ply bot­tle­neck will be closely parsed by the in­vest­ment com­mu­nity, but the sell­ing, gen­eral and ad­min­is­tra­tive ex­pense line, or SG&A, could be more re­veal­ing, said Mar­tin Landry, an an­a­lyst at GMP Se­cu­ri­ties.

“That’s what’s go­ing to tell us the break-even level needed to reach prof­itabil­ity,” Landry said. “Some li­censed pro­duc­ers have very heavy SG&A struc­tures at this point that will im­pair their prof­itabil­ity lev­els and oth­ers are very lean.”

Aver­age sell­ing price, cost of pro­duc­tion and run-rate pro­duc­tion lev­els will be other key met­rics to watch, said Bruce Camp­bell, founder of StoneCas­tle In­vest­ment Man­age­ment Inc. and chief in­vest­ment of­fi­cer at Cannabis Growth Op­por­tu­nity Corp., a pub­licly traded in­vest­ment com­pany.

“Then we can start to fig­ure out, when they pull off their next har­vest, how much money is that go­ing to mean in the till if it goes to the provinces and is im­me­di­ately sold?” he said.

Camp­bell has been repo­si­tion­ing his port­fo­lio ahead of earn­ings, buy­ing U.S.-fo­cused stocks like Cu­raleaf Hold­ings Inc., 1933 In­dus­tries Inc., Can­nex Cap­i­tal Hold­ings Inc. and C21 In­vest­ments Inc. while trim­ming his ex­po­sure to Cana­dian li­censed pro­duc­ers.

Pot stocks got a boost ear­lier this week from U.S. midterm elec­tion wins and the res­ig­na­tion of anti-mar­i­juana At­tor­ney Gen­eral Jeff Ses­sions, al­though the op­ti­mism faded the fol­low­ing day, pres­sur­ing shares.

The stocks have largely moved in tan­dem to date but that’s ex­pected to change as the im­pact of le­gal­iza­tion be­comes clearer. While in­vestors are likely to watch earn­ings more closely this quar­ter than they have in the past, it will prob­a­bly take a cou­ple more re­ports be­fore ob­vi­ous win­ners and losers emerge.

“I think the real pic­ture for us will be the March quar­ter,” Landry said. “Some of the kinks will have been worked out and we’re go­ing to get a bet­ter sense of re­sults when there’s less grow­ing pains and smoother op­er­a­tions.”

In­vestors should keep in mind that the Cana­dian re­sults are “a small por­tion of the over­all story” as in­ter­na­tional mar­kets open up, ac­cord­ing to Stifel an­a­lyst Christo­pher Growe.

“In­vest­ment de­ci­sions based en­tirely on the ini­tial re­sults of the recre­ational mar­ket would likely be ex­tremely short-sighted,” Growe wrote in a note.


Til­ray: 3Q ad­justed loss per share es­ti­mate 11 cents (range 8 cents to 15 cents); 3Q rev­enue es­ti­mate US$10.1 mil­lion (range US$8.8 mil­lion to US$11.2 mil­lion); im­plied one-day share move fol­low­ing earn­ings 26 per cent; shares have gained 598 per cent since July 18 IPO vs Nas­daq Com­pos­ite In­dex down 4.1 per cent.

Canopy Growth: 3Q ad­justed loss per share es­ti­mate 14 cents (range loss 8 cents to loss 23 cents); 3Q rev­enue es­ti­mate $61.4 mil­lion (range $33.7 mil­lion to $83.6 mil­lion); im­plied one-day share move fol­low­ing earn­ings 3.3 per cent; shares have gained 88 per cent in Toronto this year.

Au­rora Cannabis and Cronos Group: Nei­ther Au­rora nor Cronos has enough es­ti­mates to com­pile a re­li­able con­sen­sus, ac­cord­ing to Bloomberg data.


Au­rora Cannabis Inc. ap­pears on the mon­i­tor on the floor of the New York Stock Ex­change on Fri­day. The com­pany will be the first of four mar­i­juana com­pa­nies to re­port earn­ings next week.

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