Investors Run Out of Patience on Pot Profits: Cannabis Weekly

Business

Photographer: Cole Burston/Bloomberg

It’s the busiest week of the quarter for cannabis earnings, and investors appear prepared to generously reward companies that show they can turn a profit and punish those that don’t.

Key companies to report this week include Canadian licensed producers
Canopy Growth Corp.
and
Tilray Inc.
and U.S. multi-state operators Acreage Holdings Inc.,
Charlotte’s Web Holdings Inc.
and
Trulieve Cannabis Corp.

“Names who can show a route to profitability (or are there now) have the greatest likelihood attracting near-term investor interest,” Jefferies analyst Ryan Tomkins said in a note.

This will be particularly important for Canopy, which fired Co-Chief Executive Officer Bruce Linton in July after
posting
a net loss of C$323 million ($245 million) and an adjusted loss before interest, taxes, depreciation and amortization of C$98 million in its fiscal fourth quarter.

Investors shouldn’t expect immediate profitability from Canopy, which is still searching for a new CEO, said Eight Capital analyst Graeme Kreindler.

“Though we see no clear path to positive Ebitda in the near term, we do see potential for WEED to begin to focus more on profitability and growth of core business operations moving forward given our expectation that WEED will take a new strategic direction as it brings in a new CEO,” Kreindler said in a recent note, referring to Canopy by its Canadian stock ticker. He doesn’t expect Canopy to report positive Ebitda until the third quarter of calendar 2020.

Profit Rewarded


Aphria Inc.
is the most striking example of the potential upside for companies that outperform analysts’ expectations. The stock
soared
40% on Aug. 2 after it became the first large Canadian pot company to report a net profit, as results beat estimates on virtually all metrics.

Another indication of the hunger for profitability is
Aurora Cannabis Inc.
, which gained 8.2% last Tuesday when it
said
it “continues to track towards positive adjusted Ebitda, and in particular adjusted Ebitda from cannabis operations.” This actually appeared to be a bit of a climb-down from earlier
statements
that it would achieve sustained positive Ebitda by the quarter ended June 30, but investors seemed pleased to simply hear the word “positive.”


Cronos Group Inc.
, meanwhile, has lost 7.3% since it
reported
a wider Ebitda loss and said it expects that metric to worsen in the back half of the year as it prepares to launch new products in Canada and the U.S.

Market Share

Market share will be another interesting theme to watch after
CannTrust Holdings Inc.
moved to halt all sales and shipments of its products in the wake of a
regulatory breach
. About 95% of CannTrust’s products are now out of stock, according to a survey of pot supply levels in five Canadian provinces by Cowen & Co. analyst Vivien Azer.

Canopy appears to be the biggest gainer from CannTrust’s woes, adding more products to store shelves than any of its competitors between July 8, when CannTrust announced the breach, and Cowen’s latest survey on Aug. 5. Canopy has about 20% market share, the most of any producer, Azer said.

Total out-of-stock rates in the five provinces rose to 57% from 52% previously.

Upcoming Events This Week

MONDAY 8/12

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THURSDAY 8/15

FRIDAY 8/16

  • Trailblazers holds a day of talks by cannabis, CBD and hemp entrepreneurs and investors in Powder Mountain, Utah

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