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The marijuana industry has hardly budged in 2018. This year, Canada lifted a nine-year ban on recreational cannabis, saw the US Food and Drug Administration approve its entire first drug derived from cannabis and the US states – Missouri and Utah – legalize the pot to some extent. Oh yes, and Michigan has become the 10th state to use weeds for recreational purposes for adults. Just your blazing year in cannabis.
But as we move from an environment where marijuana stocks offer many promises to a legalized environment (at least in Canada), the attention of investors is now turning to tangible results. Translation: The profit reports of marijuana stock actually matter now.
Source of the image: Getty Images.
In the last week, some of the biggest names in the industry – Canopy Growth Corp. (NYSE: CGC), Aurora Cannabis (NYSE: ACB), Tilray (NASDAQ: TLRY), and Cronos Group (NASDAQ: CRON) – reported quarterly operating results. Although there are not two identical marijuana stocks, the operating results of these four polarized pot stocks have revealed a number of trends that could prove to be important in the US. entire sector.
1. Sales are increasing
This is probably self-evident, but marijuana sales posted exceptionally strong year-on-year growth, although sales were relatively weak a year ago, considering that only medical cannabis was in Canada and that foreign exports were minimal.
Canopy Growth had the lowest growth in percentage of sales, 33% to 23.3 million Canadian dollars. However, it posted the highest quarterly sales of $ 17.6 million last year. At the same time, Aurora Cannabis, Tilray and Cronos Group recorded an improvement in their income of 260%, 86% and 186%, one year on the other. In addition, sales of these producers a year ago totaled only C $ 8.2 million, US $ 5.4 million (Tilray reports in US dollars) and C $ 1.3 million, respectively.
The Canadian cannabis industry has not yet identified the potential for annual sales at home and abroad. Investors can therefore expect a three-digit sales growth almost every quarter, probably over the next two years.
Source of the image: Getty Images.
2. But the expenses are too, even at a faster pace
If you think that incomes are rising rapidly, then you have not looked more closely at the expenses for marijuana stocks because they are growing at an even faster rate than sales. This should not surprise investors as pot stocks are completing their plans to expand capacity, improve marketing and branding, lay the foundation for expansion abroad , expand their product portfolio and, in some cases, use equity compensation to acquire new businesses. The result was heavy operating losses.
In terms of spending, Canopy Growth takes the cake – and not in a good way. Selling and marketing costs more than quintupled to C $ 39 million, general and administrative expenses more than quadrupled to C $ 37.1 million, and stock-based compensation (all forms) C $ 96 million, up from C $ 7 million in the prior year. there is period. In total, Canopy lost $ 214.6 million in Canadian operations and $ 330.6 million in the quarter. Yuck!
Similar figures have been observed with the other main actors. Aurora Cannabis recorded an operating loss of 111.9 million Canadian dollars, Tilray lost 20 million dollars in an operational way (again, in US dollars for Tilray) and the loss of the group's operations Cronos is established at 4.9 million Canadian dollars.
3. There is no recreational impact yet
Even though this was expected from the beginning, marijuana equity investors are probably a little disappointed to learn that the recreational legalization of cannabis has had virtually no impact on profits. The recently completed quarters for these companies were cut as of September 30, 2018 and legalization officially took place on October 17, 2018, which means investors will have to wait an additional quarter before any impact on sales is not recognized.
The last pillar of canopy growth, Aurora Cannabis, a leader in production, ended up earning only C $ 0.7 million and C $ 0.6 million, respectively, in its latest reports.
Source of the image: Getty Images.
4. Fair value adjustments can go both ways
One of the most exciting revelations of the latest series of reports on the benefits of marijuana is that the fair value adjustment of biological assets (ie cannabis plants) is a double doorway meaning.
Canadian companies (with the exception of Tilray) report their financial results in accordance with International Financial Reporting Standards (IFRS). IFRS accounting differs from GAAP accounting in the US in a variety of ways. Perhaps the most interesting difference, given that marijuana growers are considered agricultural businesses, is that the value of biological assets must constantly be adjusted throughout their growth cycle. In other words, the value of cannabis plants in flowers differs from that of plants without flowers. These fair value adjustments also include the cost of products sold prior to the actual sale of these products, which, as you can imagine, can cause sharp fluctuations above the line.
Until recently, most pot shares have benefited from IFRS accounting. As capacity has increased, marijuana growers have recognized a higher value of their biological assets. But that will not always be the case. Canopy Growth's fair value adjustment recently converted its gross margin of C $ 6.6 million into a loss $ 34 million. This door swings back and forth and investors must realize it.
The dream time about cannabis companies is over. Investors have concrete results that they can support now.
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