Earnings estimates plummet for these pot actions – The Fool Motley

Incredible growth opportunities in the stock market would only occur once or twice per generation. The legalization of marijuana in Canada last October and in more than three dozen countries around the world in recent years may well be the incredible growth story of this generation.

Last year, Arcview Market Research and BDS Analytics estimate that global sales of weeds reached $ 12.2 billion. But by 2022, global pot sales are expected to reach $ 31.3 billion. This is a compound annual growth rate of nearly 27%, for those of you who keep the score at home. Wall Street is looking even further, with sales expected to be between $ 50 billion and $ 75 billion by the end of the next decade. This is a lot of revenue, and it clearly means that some pot stocks will succeed.

Of course, future growth prospects are not necessarily going to improve things for short-term marijuana investors. A multitude of supply chain issues in Canada, some of which are related to regulatory bureaucracy, have prevented cannabis from entering dispensary shelves. In fact, the January 2019 retail sales data published by health statistics show that weed sales in cannabis stores were down nearly 5% from December.

It goes without saying that the Canadian pot industry coming out of the ordinary, the expectations regarding the profits of some of the most popular pot stocks are falling.

Cronos Group

Although this is one of the best performing pot stocks in the first quarter, Cronos Group (NASDAQ: CRON) has recorded a fairly significant decline in the consensus estimate of Wall Street earnings per share in recent weeks. Having forecast profits of 6 cents Canadian (C $ 0.06) in 2019 and C $ 0.15 in 2020, Wall Street now anticipates a rate of C $ 0.02. loss in 2019 and only C $ 0.10 per share in 2020.

Why this change of heart? Part of the reason could be the completion of AltriaThe $ 1.8 billion investment in the Cronos group. Once completed, this resulted in the issuance of new common shares. This means more shares outstanding to divide net income (or net losses). This could certainly explain the bulk of the reduction in the 2020 fiscal year.

As for 2019, I feel that Wall Street simply did not like what he saw in the Cronos Group's fourth quarter report. Although it is the third largest stock of pots in terms of market capitalization, Cronos has generated only $ 4.2 million in sales and has evoked many channel problems. ################################################################################# 39; supply. As a reminder, this is a company whose production potential is below market capitalization and whose presence abroad is relatively small compared to its major competitors. At 234 times the profits ahead, it seems very avoidable.

Aurora Cannabis

In terms of production, no marijuana stock Aurora Cannabis (NYSE: ACB), which is currently producing at an annualized rate of more than 150,000 kilos per year at the end of March, and is expected to reach 700,000 kilos at its peak, perhaps in 2021 or 2022. But this future production will necessarily help Aurora in the short term.

According to Wall Street, Aurora is expected to generate earnings per share of $ 0.07 in 2019 and $ 0.12 per share in 2020, two months ago, at a current estimate d & # 39; a loss $ 0.22 in 2019 and only $ 0.03 per share in 2020.

Similar to the Cronos group, dilution into stocks could be part of the problem. But unlike Cronos, Aurora has not yet found a branded partner. Instead, Aurora Cannabis has continuously financed acquisitions by issuing shares of its own shares, recently exceeding one billion outstanding shares, compared with 16 million only on June 30, 2014. With more shares in hand circulation, it becomes more difficult for the company to really deliver for its shareholders.

The other factor likely to play a role here is that the huge size of Aurora also involves huge initial infrastructure costs. Being the main producer means having to complete the construction of more than a dozen farms, as well as laying the groundwork through processing, distribution, partnerships, etc., in national markets and foreigners. Suffice it to say, a forecast price / earnings ratio of 400 is probably not what investors had in mind.

Tilray

Another marijuana stock that has little Wall Street love after its latest quarterly report is Tilray (NASDAQ: TLRY).

Previously, Tilray's stock price was more than 80% lower than its all time high. Now his earnings per share estimates are also in free fall. According to Wall Street, Tilray was to lose $ 0.31 per share in 2019 (note: Tilray is expressed in US dollars), but make a profit of $ 0.17 per share in 2020. Now, after a dark quarter, Wall Street is looking for a loss of 0.68 USD in 2019 and a loss of 0.04 USD in 2020.

One of Tilray's biggest problems is that his production is simply not up to par with his peers. Even the Cronos group has a chance to produce Tilray if it is not doing well. At present, it has a domestic production capacity of 850,000 square feet and about 250,000 square feet of expanding space overseas. This could be enough for 100,000 kilos of annual production, but not much for a company valued at $ 5.5 billion.

The other concern is that Tilray is completely upsetting its long-term business model. After focusing on Canada, CEO Brendan Kennedy said during the conference call with analysts that his company would instead invest in the US hemp market and in Europe. While these opportunities are indeed more important than the Canadian weed market, a strategy shift just months after the recreational launch of marijuana in Canada is a headache.

The Dutch Bio Vert

Profit estimates also drop fairly quickly for lagging production The Dutch Bio Vert (NASDAQOTH: TGODF). Wall Street claimed a profit of $ 0.07 in 2019 and $ 0.27 per share in 2020 just two months ago. Today, Wall Street is forecasting a loss of CA $ 0.08 in 2019 and a profit of CA 0.14 per share in 2020.

The Green Organic Dutchman is probably one of the hardest titles to get, as it is not even expected to start recognizing bulk cannabis sales until mid-year. Meanwhile, business peers have been recognizing cannabis sales for many years, in some cases. On paper, being one of the top five producers with advanced capabilities seems fine, but his belated late arrival brings no help from the start.

It is also possible that, in addition to the constraints of the supply chain in Canada, the lack of productivity of The Green Organic Dutchman since the legalization of marijuana for recreational purposes in Canada has cost it valuable contracts. long-term supply. Although some provinces are still strengthening their infrastructure and governance, it is reasonable to believe that The Green Organic Dutchman has missed the mark by putting its production on the market so late.

Cover growth

Even the largest stock of pots in the world by market capitalization is not immune. Cover growth (NYSE: CGC), which lost more than $ 400 million on an operational basis in the first nine months of fiscal 2019, was expected to lose $ 1.57 per share from Wall Street in fiscal 2019, and $ 0.08 per share in 2020, just two months ago. At present, the Wall Street consensus includes a loss of $ 1.78 per share for the 2019 fiscal year and a $ 0.26 loss for the 2020 fiscal year.

Canopy Growth, which is the second largest producer with more than 500,000 pounds per year, has never focused on profitability. On the contrary, it is determined to put in place the necessary infrastructure to reach new markets, as well as to develop its brands and diversify its product portfolio.

For example, Canopy Growth acquired the hemp research company ebbu at the end of last year for about $ 330 million, and then learned in January that it had obtained a production and marketing license. hemp processing in the state of New York. The company plans to invest between $ 100 million and $ 150 million in this hemp processing facility to diversify its revenue streams and pave the way for the legalization of cannabis by the US federal government.

With the expected increase in Canopy Growth in the meantime, large losses are very possible.