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Here's What Could Give Marijuana Stocks Their Next Move Higher

By Dan Caplinger – Nov 10, 2018 at 8:35AM

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A big catalyst is right around the corner.

Investors in cannabis stocks have learned the hard way that volatility can cut both ways. Even as investor interest in the marijuana industry soared during the late summer and early fall, share prices of cannabis companies hit the skids in recent weeks as the reality of what will inevitably be a long ramp up in production and sales activity hit home for shareholders.

Yet those who seek out the highest-growth opportunities in the investing universe are always looking forward to the next big catalyst for further growth. For the marijuana industry, that's set to come in the form of quarterly reports for the rising number of publicly traded stocks that have connections to cannabis. Many of the biggest players in the space will issue their reports over the next week, and that should both refresh investors' memories about the huge growth potential of cannabis and confirm whether marijuana companies are living up to their full potential.

Inside view of arch-shaped greenhouse with marijuana plants grown under lights and fans.

Image source: Getty Images.

What to expect from cannabis companies in the next week

Here's a brief look at some of the major companies in the marijuana industry that are expected to report their latest earnings results in the near future:

  • Canopy Growth (CGC -7.01%) reported a 63% year-over-year rise in revenue last quarter, bringing in $25.9 million Canadian dollars over the three-month period. Investors are hoping to see even more dramatic gains when it reports on Nov. 14, with current third-quarter sales projections for CA$75.3 million, which stem, in part, from the recent acquisitions Canopy has made.
  • Tilray (TLRY) saw even bigger growth rates when it issued its first quarterly results as a publicly traded company three months ago, seeing revenue nearly double to $9.74 million from year-earlier levels. Most investors are looking for only modest further gains, to $10.25 million in sales for the just-ended third quarter, but that would still likely be a big increase from what Tilray sold in the third quarter of 2017. Tilray's expected to release its results on Nov. 13.
  • Aurora Cannabis (ACB -6.20%) more than tripled its revenue in the third quarter of 2018, to CA$19.1 million, and most investors see those favorable trends continuing. Thanks to its acquisition of MedReLeaf, Aurora could see revenue of CA$39.5 million in its Nov. 14 report, and that figure would be almost five times higher than its year-ago sales.
  • Cronos Group (CRON -3.49%) has been playing catch-up on a revenue basis, and it'll have to keep working hard to do so for the foreseeable future. Sales of CA$3.39 million in the second quarter multiplied more than fivefold from year-earlier results, but projections for CA$3.56 million on the top line for the third quarter won't give investors much in the way of sequential growth to hang their hats on when Cronos reports on Nov. 13.

It's also important to keep in mind that investors are expecting none of these marijuana companies to be profitable during the period. That's understandable, in part because the companies are just now ramping up their business models, and in part because the expenses of establishing themselves as key players in the cannabis industry have been extensive.

Much ado about nothing (yet)

Marijuana investors should look closely at these companies' quarterly reports when they come out, but they shouldn't focus on typical headline numbers like sales and net income. The reason is simple: The big impact that investors hope will send sales skyrocketing -- the legalization of recreational cannabis in Canada -- didn't happen until mid-October. That means shareholders will have to wait until February before getting firm reads on how things are going in the Great White North.

However, what investors can expect now is commentary from company executives about early results, with anecdotal and some limited financial information about how the beginning of the fourth quarter is going. Already, there have been reports of limited supplies of cannabis in Canada, suggesting that the rollout hasn't gone as smoothly as some had hoped. It could take a while for the new distribution process to work out the kinks.

The good news for investors, though, is that the experience in Canada should serve to provide valuable knowledge if cannabis companies get a chance for an even bigger rollout elsewhere in the future. Most marijuana investors are still focusing squarely on the huge potential of the U.S. market in the event of a federal legalization effort, so looking at how successful cannabis companies are in navigating difficulties in Canada could foreshadow winners and losers in a future U.S. push.

Keep your eyes open

After a tough October, marijuana investors are hoping for news that will restore confidence in the industry. Quarterly financials could provide that catalyst, and those companies that deliver good results could see nice rebounds in the week to come.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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