As bad as the markets have been for pot stocks the last six months, analysts have been bracing investors for further damage while cannabis heavyweights report quarterly figures this week amid lowered expectations.
Tilray (NASDAQ:TLRY) and Cronos Group (TSX:CRON)(NYSE:CRON) were the first of the four largest Canadian weed companies by market value to announce results Tuesday for the quarter ending Sept. 30. Both companies posted major losses punctuated by major declines in price realized per gram and further issues to gain ground in the Canadian recreational market.
Meanwhile, on Thursday marijuana titans Canopy Growth (TSX:WEED)(NYSE:CGC) will report in the morning and Aurora Cannabis (TSX:ACB)(NYSE:ACB) in the evening.
Cantor Fitzgerald analyst Pablo Zuanic warned investors Sunday to “expect weakness from this earnings season,” as data shows stagnant demand on the consumer level with provincial distributors slowing down orders. On Tuesday the analyst called it a “rough start” to the earnings season based on the early reports, which will push pot stocks even lower in the near term.
Zuanic’s comments comes on the heals of the analyst calling “the bottom on Canadian cannabis stocks” last week citing a long list of positives such as improvements in recreational sales, more stores coming online, and increased sector consolidation.
Tilray says profits are coming despite piling third-quarter losses
Tilray posted third-quarter revenue of US$67.8 million, up from US$10 million in the same quarter last year and beating Wall Street expectations by more than US$2 million.
The company’s revenue surge was driven by US$15.7 million in hemp product sales, the result of its Manitoba Harvest acquisition, and international medical cannabis sales jumping to US$5.7 million from $US949,000 a year ago. Tilray also sold US$15.8 million worth of recreational weed, representing just 30 per cent of its total revenue for the quarter, a decline of two per cent from the second quarter.
Despite rising sales the licensed producer posted a net loss of US$35.7 million, up from US$18.7 million a year ago. The third-quarter loss was driven by a massive increase in operating expenses as the company builds out its hemp and international businesses.
The Nanaimo, B.C.-based company also took a beating on its average net selling price per gram, which plunged 30 per cent to just $3.25. Even though Tilray sold 10,848 kilograms of cannabis, almost double the amount sold from last quarter, the downward pressure on price cut into its bottom line.
Despite what analysts are calling a “mixed third quarter earnings,” Tilray CEO Brendan Kennedy told Bloomberg News the company’s Canadian operations should be profitable ahead of its late 2020 target.
“It’s likely that our business in Canada will be EBITDA-positive before the rest of our business, just because it’s at a different stage of development,” he said.
Shares of Tilray were down three per cent Wednesday.
Cronos Group steers towards CBD as domestic cannabis sales lag
Cronos reported a massive profit of $788 million for its quarter, but that was mainly boosted by a $835 million gain in derivative liabilities and most analysts were mostly unimpressed with the company’s third quarter earnings.
Toronto-based Cronos posted net revenue of $12.7 million, which attracted some negative attention as it missed the consensus analysts’ estimate of $14.14 million.
Cronos stock dropped 7.6 per cent Tuesday.
While the company’s revenue climbed 25 per cent higher than the previous quarter, it struggled to penetrate the Canadian recreational market worse than its peer Tilray. While Cronos sold over 3,000 kilograms of cannabis, the bulk of the sales came from wholesaling to other licensed producers as opposed to provincial and private retailers.
Even more jarring for investors, the company’s per gram price on the wholesale market was just $3.75, 42 per cent lower than three months ago.
However, with Cronos’ sizeable cash balance of $1.9 billion, cannabis analyst Jason Zandberg at PI Financial believes it’s one of the few companies that will “have the war chest to fund its operations and capital projects.”
Cronos is flush with cash thanks to the $2.4 billion investment made last year by Altria (NYSE:MO), the maker of Marboro cigarettes.
In its earnings release, Cronos announced the launch of a new hemp-derived CBD brand PEACE+ to will sell hemp-derived CBD tincture products in a test market of 1,000 retail stores in the U.S. using Altria’s sales and distribution network.
Cronos appears to be reshaping its long-term strategy by pivoting from the Canadian recreational cannabis market and towards the lucrative U.S. CBD market. In August, the company also made a splash by acquiring the company behind CBD brand Lord Jones, which sells its luxury CBD products in over 800 U.S. locations including Sephora beauty shops.