Less than a week after the publication of its quarterly results, Canopy Growth Corp., the largest cannabis company by market value, had to issue a correction.
The Smiths Falls, Ontario-based company has announced that it is reformulating an indicator in the release of the third quarter and nine months of the last fiscal week, after a formula error in a spreadsheet. Unfortunately, the metric in question is the one that the company advised analysts and investors to consider as the best measure of its underlying business.
The Company has indicated that the amount of adjusted nine-month EBITDA (earnings before interest, income taxes, depreciation and amortization) should have been C $ 155.2 million ($ 117.8 million), but that it had been incorrectly stated at $ 69.0 million. "The adjusted loss in EBITDA for the quarter ended December 31, 2018 was correct as reported, as were all previous quarters as published," the company said in a statement.
The news highlights some of the youth issues that cannabis companies face in the early days of the new legal sector. Canopy released its numbers much later than expected last Thursday night, by putting them in the database of the Canadian securities regulator just before the 45-day deadline.
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The company has announced a 282% increase in its quarterly sales since marijuana became legal in Canada, but its profits have been affected by paper losses and accounting quirks that may not be familiar to US investors . Canadian companies apply a different accounting standard than GAAP, or generally accepted accounting principles, that US companies are required to follow.
For all the coverage of cannabis companies by MarketWatch, click here.
For example, a mark-to-market adjustment of the convertible senior notes saved Canopy earnings of C $ 185.8 million, due in part to the turbulence of the stock market. This loss has been eliminated from diluted earnings per share but not from basic earnings per share; a profit of 22 cents per share has turned into a loss of 38 cents per share on the next and final line.
Canadian accounting rules also state that companies must account for their biological assets, their potted plants, at different stages, which means that they must guess the value of their plants before selling them. In a young market with no futures price, this calculation is tricky, as recent reports show.
See more: How can marijuana companies profit without selling pot
And, like many new sectors, the cannabis sector has already seen its share of shareholder manipulation and insider trading on the part of executives, as reported by MarketWatch. Last week, Aphria Inc. said that an investigation into acquisitions in Argentina, Colombia and Jamaica had revealed that some directors were in conflict of interest. The company's executive director, Vic Neufeld, and co-founder Cole Cacciavillani leave their roles in March, although they remain advisors.
See: The collapse of this cannabis stock offers a valuable lesson to every investor
Also: Canadian cannabis company Namaste slips after CEO dismissed for cause
Part of the canopy
Piper Jaffray said the group remained optimistic.
"We continue to estimate a potential global long-term cannabis market of between $ 250 and $ 500 billion, with a short-term opportunity of between $ 15 billion and $ 50 billion," analysts Michael Lavery and Jeffrey Kratky wrote. . "We anticipate that intellectual property, value-added products and changing form factors will be key long-term factors for the company." Piper Jaffray awards the stock an overweight position with a target price of $ 60 33% more than its current level. .
Seaport Global on Thursday launched a cannabis industry hedge, giving Aphria Inc. purchase ratings.
APHA + 1.80%
Dutch Bio Green
TGODF, + 0.94%
tgod, + 0.54%
KushCo Holdings Inc.
KSHB, + 3.63%
MedMen Enterprises Inc.
Green Thumb Industries Inc.
GTBIF, + 3.95%
Acreage Holdings Inc.
ACRGF, + 0.47%
iAnthus Capital Holdings Inc.
and Curaleaf Holdings Inc.
It has neutral notes on Canopy, Tilray Inc.
and Aurora Cannabis Inc.
CBA + 0.14%
CBA + 0.22%
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Seaport expects the global market to reach $ 640 billion by 2040, the only US market worth $ 94 billion. The research firm released Thursday a report of more than 200 pages on the sector that covers everything from individual companies to trends, regulations and the history of the plant.
In a section devoted to CBD, or cannabidiol, analysts predict that the US Food and Drug Administration will update its position on the non-psychoactive ingredient found in cannabis and hemp, widely recognized properties of well-being. The recent 2019 US Farm Bill fully legalized hemp for commercial purposes, but the FDA has maintained the ban on adding CBD to foods or beverages because it has not been thoroughly researched. The agency has issued guidelines for many companies wanting to launch CBD-impregnated beverages and food products and has promised public discussions on the subject, but for the time being, businesses are at a standstill.
Seaport believes that it is only a matter of time and noted that many small local manufacturers were unaware of the ban.
Read now: Why New York's plan to legalize cannabis for recreational use in adults is a big problem
A group of bipartisan legislators sent a letter to the FDA last week, calling for immediate action on the matter. A recent stock series in New York, Maine and Ohio, aimed at clamping down on the sale of CBD-based foods and beverages, "has caused huge confusion among manufacturers of products, hemp growers and consumers of these products, "said the letter. reported by Weedmaps, an information community website for businesses and consumers.
Hexo shares rose 1.1%, Aurora 1.7%, Cronos 2.2% and Tilray 2.4%.
The ETFMG Alternative Harvest ETF
down 0.1%, and Horizons Marijuana Life Sciences ETF
was up 0.3%. The S & P 500
and the Dow Jones Industrial Average
were both down about 0.4%.
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