Five marijuana stocks are reporting their earnings this week. Aphria (APHA) showed strength in October with a profitable quarter, but as a whole, the cannabis industry has disappointed relative to the valuations of many of its stocks. This week's reports should give us a pretty clear indicator of where things stand.
Let's look at all five names set to report this week. With each company headquartered north of the border, all figures are in Canadian dollars unless noted.
1. Aurora Cannabis
The past five years were expensive for Aurora Cannabis (ACB -3.55%) as it worked to grow its revenue streams. Fiscal 2019 saw a massive loss of CA$290.84 million as expenses skyrocketed. In that same time frame, revenue rose 349% to CA$247.90 million. That's impressive, but Aurora is no different from the other companies here in leaving investors to wonder when it will post meaningful earnings.
The company erred in the fiscal fourth quarter of 2019 by providing a profitable guidance target ahead of the release. The quarter instead showed a loss and the markets punished Aurora. The company has put considerable effort into creating production of scale, and the costs of doing that will take some time to overcome. But as long as losses don't increase drastically, investors should stay more focused on Aurora's sales, as the players that are creating the scale to capitalize on supply shortages are going to benefit in the future. This is where Aurora carries some weight, as it has largely led the pack in terms of production capabilities.
The company reports today after market close.
2. Cronos Group
Much smaller in scale, Cronos Group (CRON -1.67%) reports on Nov. 12. The company brought in $7.35 million last year. In the company's most recent quarter, it reported CA$6.68 million in sales, a huge increase from the CA$769,000 the year prior. But this type of big revenue growth is pretty customary for the industry, as it marked the point when legalization took hold.
What Cronos does have going for it is profit. The company reported net income of CA$251.12 million in the second quarter, preceded by CA$427.83 million in Q1. Income is always good, but in this case, it didn't stem from the core business but from derivative liabilities. Operating income, in fact, was negative.
What holds Cronos back is production. The company sold only 1,584 kilograms of cannabis. That's pretty small relative to comparable names like Aurora, which is dealing in hundreds of thousands of kilograms in production capabilities. For that reason, it's a concern that Cronos might end up spending big in the future to play catch-up. Be mindful of any commentary in the earnings report in regard to spending on production capacity.
Reporting on Nov. 12, Tilray (TLRY) has taken investors on a wild ride. The stock created quite the buzz when it made a tumultuous run to nearly $150 a share last October. Since then, the reality of valuation has sunk in, and the lack of any meaningful profit has led the stock to come crashing down to a little over $22 a share. Estimates don't speak well for this week's earnings, with analysts expecting continued losses.
Tilray can offer some hard lessons on speculation, as the stock simply ran long before the impact of sales growth was visible to investors. Now the stock is trading in a more realistic range, but it still requires some caution. Sales growth will be the focus this week, but a negative surprise on earnings versus estimates might press this stock further down.
4. Canopy Growth
The headache of Constellation Brands (STZ 0.32%), Canopy Growth (CGC -0.66%) reports on Nov. 13, and the results will affect not only Canopy but its large alcohol conglomerate partner as well. Constellation Brands owns a large stake in Canopy, and any bad news for the cannabis company will certainly rain on Constellation's parade. Alternatively, any good news will have the opposite effect.
Canopy Growth reported painful losses of CA$1.28 billion in its most recent quarter, so it could use a win. The stock has lost more than half of its value since May, and another poor showing is likely to add to the bearish sentiment.
This stock really gained traction and expectations after the Constellation investment. With billions of cash on hand, Canopy was situated to outmaneuver its rivals. The problem is Canopy got too comfortable spending it.
While losses seem likely to continue, market sentiment on Canopy will probably be based on how bad those losses are. If the company can show the markets that it won't be losing billions again and again, things should calm down a bit. The long-term potential here is too great to ignore.
Though profitable, CannTrust (CNTTQ) is a small player. Reporting on Nov. 13, the company sold CA$16.85 million in its most recent quarter, but progress has been marred by the investigation into illegal cannabis growing. The company was found to be growing some of its product in unlicensed facilities, rattling investor confidence.
A few weeks ago, the company said the investigation into the matter is wrapping up, but at the same time, it announced it would lay off 140 employees. So far, the drama has cost the company a CEO and resulted in a temporary halt on the sale of its products, as well as the destruction of $58 million worth of product. Obviously, these issues don't bode well for this week's earnings release.
With the losses incurred, CannTrust is a name to avoid right now. The company has been eating cash since last June, and its current problems are likely to have taken a big bite out of the balance sheet.