What a difference a few weeks can make in the weed trade. Over the past 14 days, three prominent players in the cannabis space, Tilray (NASDAQ :), Cronos Group (NASDAQ :), (TO 🙂 and CannTrust Holdings (NYSE :), (TO :), reported their earnings every quarter.
In the aftermath, their once hot stocks picked up serious hits. CannTrust in particular, who received a serious beating last Thursday, as a result of which his shares recovered from a 23% dive.
Are marijuana stocks just too volatile for regular investors? Is the promise of legalized cannabis and the companies that were produced excessive? And, perhaps most important for those waiting on the sidelines, wondering if they are jumping into this emerging sector that has already delivered triple-digit gains for some equity investors, is it time to buy the dip?
Before we go into more detail on the basics of each file, two important takeaways must be noted:
1. The most recent quarterly results were the first for the entire period that marijuana was legal in Canada. This is important because the black-and-white numbers in a spreadsheet of the past quarter do not tell the full story. Investors – whether current or potential – must understand that this is a newly discovered business area, a country that has withstood far from perfect implementation of the new regulatory framework to structure the legalization of the product.
2. Investors must keep a sharp eye on the environment in which these companies operate. Cannabis is more than just a medicine for recreational use. It is a disruptor that has the potential to change markets in different sectors: tobacco, alcoholic beverages, pharmaceuticals, wellness, pet care and a wide range of its simply edibles grains, chocolate, baked goods mentioned among them
What did we actually learn about the health of these three companies during their reports for the fourth quarter of 2018?
Tilray
Since reporting on Monday, March 18, the Canadian-listed company has seen its share fall by 10.65%, closing last Friday at $ 65.52 per share.
The company achieved 203.8% higher sales for the quarter compared to the same period last year. Overall, sales increased by 110% in 2018 compared to 2017.
Tilray's net loss for the year was linked to $ 67.7 million, or 82 cents per share, compared to $ 7.8 million, or 10 cents a share in 2017. The net losses for the fourth quarter were $ 31 million, or 33 cents per share, compared to $ 3 million, or 4 cents per share, in the fourth quarter of 2017.
Despite this, the expansion and strategic alliances in 2018 were remarkable: Tilray signed a deal with Sandoz, a division of pharma giant Novartis (NYSE :), to provide more access to medicinal cannabis to patients around the world. It also signed a research and development partnership with Anheuser-Busch Inbev (NYSE :), & # 39; the world's largest brewer, to develop non-alcoholic THC and CBD drinks. THC is the element in the pot that the so-called & # 39; high & # 39; produces while CBD claims to contain medicinal benefits
Tilray has also announced a long-term revenue sharing agreement with Authentic Brands Group, a New York-based brand development company, to leverage its brand portfolio to develop, market and market cannabis products from consumers around the world. to divide.
Cronos
Cronos shares have fallen 9.7% since the company's March 26 report.
The company reported a net loss of $ 11.6 million net in the period ending December 31, 2018, compared to a profit in the same quarter at the end of 2017. Net income was $ 5.6 million for Q4 2018, compared to $ 1.6 million for the same quarter of 2017, an increase of $ 4 million, or 248%.
Revenue for the whole of 2018 increased to $ 15.7 million, an increase of 285% over the $ 4.1 million that was contributed during the full year 2017
Investors are closely monitoring the performance of the company in the recreational segment of the market. They also look at how successful it has been to increase production capacity. It reported the establishment of new growth facilities and additional joint ventures with companies in Australia and Israel.
The company reported total operating costs of $ 12.4 million in the fourth quarter of 2018, compared to $ 2.9 million for the same period in 2017, an increase of $ 9.5 million or 328%. For the full year 2018, operating costs linked to $ 29.4 million, compared to $ 9.3 million the previous year, were 215% higher.
Last quarter, Cronos received a cash infusion, when the American cigarette maker Altria Group (NYSE 🙂 bought a 45% stake for C $ 2.4 billion (USD $ 1.8 billion). The deal was completed earlier this month. Altria has the option to acquire an additional 55% stake within four years, which would give her majority control over the company.
CannTrust Holdings
CannTrust Q4 earnings report, issued on March 28, depressed the shares, which then fell 22.7 percent. It closed out last Friday at $ 7.76.
CannTrust reported a 132% increase in revenue compared to the same period last year. But it also recorded a net loss of $ 25.5 million for the period. That translated into a loss of 26 cents per share compared to the profit of $ 6.3 million (or 8 cents per share) in the fourth quarter of 2017. Analysts were disappointed and expected to see a loss of 4 cents per share .
One of the highlights of the Q4 2018: the Ontario-based company graduated to a listing and started trading in the US. In addition, CannTrust obtained all necessary permits to further expand its indoor cultivation facilities and to secure 200 hectares of land on which it could develop an outdoor nursery. The company manages a 430,000 square meter greenhouse in the Niagara region, one of the largest in North America.
CannTrust has also signed an important partnership with Breakthru Beverage Group, Canada & # 39; s largest alcoholic beverage broker active in the wine and beer sector.
Bottom line for cannabis companies: they move quickly on different fronts. While they continue to increase production and fill the pipelines for what has already been legalized, they also look ahead to the potential in additional areas such as food.
In general, it is a market that is expected to generate a profit of billions of dollars. And the longer the US abstains from legalizing the substance, the more attractive Canadian companies become to large American players who want to position themselves within space. As long as the US does not legalize the substance at federal level, the size and scope of this window is wide open to Canadian players.