After the huge profits some of the top marijuana stocks have made in the past year, how much more can these companies offer? Investors ask this question after top marijuana players have announced mixed results for their fourth quarter, which was the first full period after Canada legalized the recreational use of marijuana in October, making it the first developed nation to do this.
Realistically, there is no right way to rate pots for a very simple reason: these companies do not have enough history to give analysts a starting point on which to base their prospects for the future. Their rich valuations are based on the estimated market size, future sales assumptions and the worldwide legalization hype for both recreational and medical cannabis consumption. These scenarios may or may not become reality.
Let us briefly review the performance of the top three in the fourth quarter and see how far they have gone in their growth rays.
1. Canopy Growth
Canopy Growth Corp. (NYSE :), the largest marijuana producer, in the fourth quarter, but disappointed by the gross margins. The company reported net sales of C $ 83 million, an increase of 282% compared to a year earlier. The adjusted loss before interest, taxes, depreciation and amortization rose to C $ 75.1 million, in contrast to the loss analysts of C $ 45 million who had expected this.
Adjusted gross margins fell to 22% compared to 55% over the same period a year ago as the producer was confronted with higher costs related to non-fully-operating subsidiary companies, the development of food and drink products and lower average prices for recreational pot versus medical pot.
Tim Saunders, Chief Financial Officer, told analysts during a conference call that the company believes gross margins will improve in the coming quarters, when all growing facilities are fully utilized
Canopy Growth Weekly Chart
Together with new, more expensive forms of cannabis such as edible drinks and beverages, this should help to increase margins "north of 50% in the coming quarters," Saunders said during the call, as reported by Bloomberg. Closing to $ 44.23 yesterday, Canopy's price has risen more than 60% this year.
2. Aurora Cannabis
The story was not much different for Aurora Cannabis (NYSE :), which also saw its margins shrink after the cost of developing new products increased and prices fell. The company reported, while sales in Q4 increased 362% to C $ 54.2 million.
Aurora, which captured around 20% of the Canadian market in the quarter, sees a great opportunity in global medical sales. "If I lose sleepless nights, I lose sleep over our ability to supply the global cannabis market," said Terry Booth, Director General of Aurora, during Aurora & # 39; s conference call, quoted by Bloomberg, adding that it is at least It will take five years for the industry to meet the demand for high-quality pot output.
Aurora is active in 21 countries with a strong presence in the European Union. The company announced early this month that billionaire investor Nelson Peltz has joined Aurora as a strategic advisor.
Aurora Cannabis weekly chart
Peltz, whose New York-based Trian Fund Management LP manages more than $ 10 billion, will advise Aurora on "possible partnerships with leading companies," the company said in a statement on March 13. Trading around $ 9 per share, Aurora shares are up 77% this year, mainly based on the hope that the company will find a major global partner to realize its expansion plans.
3. Tilray Inc.
Tilray (NASDAQ :), one of the largest producers whose shares increased by 300% at one point last year, revealed a similar pattern when. The quarterly revenue grew to $ 15.5 million, an increase from $ 5.1 million in the same period last year and beat the consensus forecast of $ 14.1 million.
But the losses increased to $ 31 million, or $ 0.33 per share, from $ 2.9 million, or $ 0.04 cents per share, in the same period of the year before. That was broader than the $ 0.14 consensus forecast.
For 2019, Tilray said sales could at least triple compared to last year's $ 43 million, especially after the company positioned itself to meet the growing demand for hemp-derived CBD, the non-intoxicating cousin of THC, through his recent acquisition of Manitoba Harvest.
Tilray weekly chart
Tilray shares, trading at $ 67.78 at the close of yesterday, have fallen by more than 30% since the Jan. 14 peak of $ 106, as some investors questioned the company's expansive valuations in comparison with comparable products that have a higher turnover
Bottom Line
The revenue reports of these top producers clearly show that they are well on the way to boosting their sales, but are unable to control costs in the early stages of their explosive growth. But that is very normal for a company in a fast-growing cycle.
That said, investing in marijuana stocks is still a very risky bet, because companies that have not yet shown a meaningful path to profitability become the first victims when investors reduce risk. We continue to recommend that long-term investors stick to the big names and look for better access points as the current stock market sellout accelerates.
