Last week landed smack in the thick of earnings season, and consequently, several companies in the marijuana sector reported their latest fundamentals. Happily, these were largely encouraging.
Outside of that, there was some dealmaking in the sector, which investors also greeted positively. So in contrast to last week, with its cannabis company CEO firings and regulatory warnings, this one was generally sunnier for marijuana stock investors.
Scotts Miracle-Gro keeps growing
Arguably the best picks-and-shovels play among marijuana stocks, Scotts Miracle-Gro (NYSE:SMG) posted double-digit growth in key fundamentals in its latest quarter.
The gardening equipment and supplies company posted its fiscal third-quarter 2019 results. These showed that revenue grew like a wild weed, rising 18% on a year-over-year basis to just under $1.2 billion. Non-GAAP (adjusted) net income came in 17% higher at $176 million ($3.11 per share). Both figures trumped analyst estimates; on average, these were for $1.07 billion on the top line and earnings per share (EPS) of $2.74.
Better, as far as marijuana stock investors are concerned, the company's Hawthorne unit -- which supplies products used by cannabis growers -- was a big driver of growth. The division's organic sales during the quarter rose by 49%.
Finally, the company upped its full-year adjusted net profit guidance for not the first, but the second time in fiscal 2019. It now believes adjusted EPS will come in at $4.35 to $4.50, on the back of 16% to 17% sales growth.
Scotts Miracle-Gro is in the right place and right time to benefit from the sharp expansion of the cannabis growing industry. Given the dynamics of the market and the company's solid position, its expected (and continued) double-digit growth is eminently achievable.
Aphria Q4 -- surprising success
Another marijuana stock posting on the quarterly scoreboard this week was Aphria (NASDAQ:APHA). The Canadian company flipped to a solid profit on the bottom line, while showing impressive revenue growth.
Said revenue was up by nearly 1,000% year over year in the company's fourth quarter of fiscal 2019, to CA$129 million. Net profit was nearly CA$16 million, which shook out to CA$0.05 per share and was in vivid contrast to the Q4 2018 net loss of CA$5 million (CA$0.04). These improvements were on the back of an over four-fold rise in kilos and kilogram equivalents sold, which in the latest quarter stood at 5,574.
The great bulk of the revenue growth, at least, was due to its recent acquisition of CC Pharma (a German medical marijuana distributor). But the performance of that unit was baked into estimates; the fact that Aphria still exceeded expectations was very heartening. Its efforts at brand building, efficiency, and a concentration on core strengths appear to be working.
No wonder Aphria stock was an outperformer this week. From Monday to Friday, its price rose by 33%.
Cronos acquires Lord Jones CBD personal care products
This week wasn't all about quarterly updates in the cannabis sector; there was some dealmaking, too.
Cronos Group (NASDAQ:CRON) announced it reached an agreement to buy the CBD-based skincare and beauty products line operated by Redwood Holding Group under the brand name Lord Jones.
Cronos is parting with around $300 million to buy Lord Jones. Most of this ($225 million) is to be transacted in cash, the rest to be settled in Cronos stock. The deal is expected to close some time this calendar quarter.
As Redwood is a privately held company, we don't have a fix on how it's doing financially, and in its press release on the acquisition, Cronos didn't provide many clues. Regardless, Lord Jones has positioned itself as a premium brand, apparently with success -- its products have been written up in publications such as The New York Times, and several celebrities are known to be devotees.
Besides, Cronos is one of those rare marijuana companies with a relatively high cash pile; it held CA$2.4 billion at the end of its most recently reported quarter. So the company is spending well within its means to acquire a highly complementary asset with some consumer cachet. Knowing what we know, then, this seems like a smart move for Cronos.