Earnings season is about to heat up this week for cannabis stocks, as Canopy Growth Corporation and Aurora Cannabis will both report earnings. Canopy Growth is set to report on Thursday, November 14th before the market opens and Aurora Cannabis is set to report earnings on the same day, after the market closes. Their results will no doubt drive their share prices, as well as other cannabis stocks, over the next few weeks. With expectations for the cannabis sector falling, bullish investors are hoping for some much needed positive news.
On Monday, November 11th MKM Partners lowered their quarterly estimates on Canopy Growth and Aurora Cannabis, noting that they expect neither company to show much improvement in sales when they report their earnings.
MKM analyst Bill Kirk laid out his reasons for the cuts. First off inventory held across provinces is weighing on shipments from manufacturers. Second, pricing is falling and the lower prices are still not as competitive as the price of weed in the illegal black market. Bill stated in a note to his clients that “While net sales estimates have come down for both since the end of August, we believe there is still some risk to revenue estimates and EBITDA estimates.” He continued, “With sequential growth suddenly stalling/declining, we believe profit and loss de-leverage will negatively surprise.”
Overall, what we’ve seen throughout the cannabis sector are companies that over promise and underdeliver. Other cannabis companies who previously made optimistic earnings expectations have been punished recently, like HEXO, who has lost an immense amount of value over the past few months.
Aurora Cannabis was expected to be profitable by the end of 2019, but announced last quarter their estimates were pushed back to 2020. Bill Kirk also mentioned that “For instance, Aurora is unlikely to be EBITDA positive by June 2020 as consensus expects,” In Aurora’s case we need to see revenues materialize from the new cannabis 2.0 market for edibles, extracts and oils along with international revenue growth.
At some point, the cannabis sector will become oversold. Better than expected earnings from Canopy Growth and Aurora Cannabis could trigger a rebound for the sector but many investors don’t seem to think that’s in the cards, as short sellers have continued to build positions in the cannabis stocks, even as many sit near 52-week lows.
These earnings will be very important to the sector. So keep a close eye on these two stocks on Thursday, as their reports will surely bring volatility to the whole cannabis sector.
(Disclosure: The author owns shares of Aurora Cannabis and Canopy Growth Corporation)
ACB shares rose $0.01 (+0.28%) in after-hours trading Tuesday. Year-to-date, ACB has declined -28.02%, versus a 25.36% rise in the benchmark S&P 500 index during the same period.
About the Author: Aaron Missere
Aaron is an experienced investor who is also the CEO of Departures Capital. His primary focus is on the cannabis industry. He also hosts a weekly show on YouTube about marijuana stocks. Learn more about Aaron’s background, along with links to his most recent articles. More...
