Four major Canada-based weed producers are set to report earnings next week, the biggest financial test for the companies since Canada legalized adult recreational use of cannabis on Oct. 17.
While legalization occurred after the quarter ended, there is plenty to learn from reports by Aurora Cannabis Inc.
, Canopy Growth Corp.
, Cronos Group Inc.
and Tilray Inc.
Pot producers were frantically trying to produce enough marijuana to satisfy demand in the third calendar quarter, so costs may have shot higher and hurt the bottom line, while forecasts for the current quarter and any commentary executives give could signal how sales have performed so far.
“There are supply chain issues we’ve had with legalization in Canada and along with that we’ve seen some problems,” said Jason Wilson, president of Budding Equity Asset Management and a partner in the ETFMG Alternative Harvest ETF.
“We want to know how are the operations going? Are we actually getting product to market? We know it’s not going to perfectly smooth transition.”
Wilson said that he is closely watching revenue growth and earnings.
“Are the companies getting closer to profitability? We know there’s more product coming out now, but we also want to see production costs and other costs.”
Executives have the chance to reveal if they are constrained by supply, after several large buyers told MarketWatch that they were having issues obtaining marijuana to sell, receiving roughly 40% of what they ordered as legalization began. Some have also run into unexpected issues, such as delays in receiving excise stamps and having to hustle to get glue applied to the stamps.
For more on what metrics are important for judging the performance of cannabis producers, please see MarketWatch’s Guide to Pot Stocks, which includes profiles of all these companies. Here are when the companies are reporting, and what to watch for when they do.
Even though Aurora reported earnings from fiscal 2018 just a few weeks ago, the company will show off results from the quarter ended Sept. 30 on Monday before the markets open, with a conference call scheduled for 10:30 a.m. Eastern time.
Expect another update from executives about the Aurora Sky facility in Alberta. Aurora has sunk more than C$150 million into construction so far for the 800,000-square-foot facility that is expected to produce 8,000 kilograms of weed a month beginning in 2019. It received a license to sell cannabis from Health Canada in October.
Beyond its construction activities, it will also be worth keeping a close watch on Aurora’s investments. Last quarter, the company’s stake in The Green Organic Dutchman Holdings Ltd.
, for example, brought in more profit on paper than its cannabis operations. Aurora has since sold a portion of its shares but has made other investments, such as buying a C$20 million stake in Choom Holdings Inc.
, a Canada-based pot retailer, with an option of acquiring 40% of the company at a later date.
Cronos has two brands for recreational consumption available in Canada called Spinach and Clove. As of the end of October, the company’s dried flower products were sold out in Ontario, but available in British Columbia. According to GMP Securities analyst Martin Landry, Cronos shipped about 100 kilograms of pot for the recreational market in September — a low number in part because of tax stamp shortages.
When Cronos reports earnings Tuesday before the market opens, with a conference call at 8:30 a.m. Eastern time, watch for updates on Building 4, the company’s 280,000-square-foot facility in Ontario. It has received licensing but may not have begun harvesting until November, according to Landry.
Cronos inked a partnership with a U.S.-based company, Ginkgo Bioworks Inc., in September, a deal that furthers the company’s goal to advance its knowledge of cannabinoids, the compounds in a marijuana plant that produces effects in users, psychoactive or otherwise. Tuesday’s earnings will be the first quarterly check in following the deal.
In early October, Tilray announced the closing of an additional $435 million of net financing, which is on top of the $163 million in net cash it received from its initial public offering earlier this year. While it is far from the $4 billion that rival Canopy Growth has in its war chest, Tilray Chief Executive Brendan Kennedy told MarketWatch in October that the company plans to use the proceeds to continue growing the company.
“We will continue to expand our footprint in Canada, we’re continuing to invest in Portugal — we’re going to continue to expand our capacity inside the European Union, for the EU,” Kennedy said. “We’re constantly evaluating [merger and acquisition] opportunities in Canada and around the world.”
Unlike some of its competitors, Tilray offered provincial buyers a range of 200 different products and many brands to choose from, so any commentary around what is and is not successful will be closely watched. It’s also worth keeping an eye out on whatever product the company shipped in September.
Tilray will report Tuesday after the market closes, with a conference call scheduled for 4:30 p.m. Eastern time.
Canopy is one of the few large weed companies with a retail footprint, operating in several provinces under the Tweed brand, so executives may have greater insight into how recreational pot is faring so far — though it only has seven locations scattered across the country. As Canopy’s weed production is among the highest of its peers and it has signed supply agreements with every province, investors should watch its commentary and guidance for the December and March quarter closes.
Canopy Chief Executive Bruce Linton told MarketWatch in October that each transport truck full of pot the company ships is worth about C$3 million, so it’s no wonder Canopy announced a deal Thursday with Brinks Corp.
to provide security for the company’s domestic and international operations.
Canopy is expected to release earnings Wednesday before the market opens, with a conference call set for 8:30 a.m. Eastern time.
Note: None of the companies have enough analysts following them for MarketWatch to confidently provide worthwhile average estimates for financial performance, according to FactSet surveys.