On Monday, marijuana stocks were on fire, but on Tuesday, it's mostly smoke and ashes. As of 9:45 a.m. EST, shares of industry giant Canopy Growth (NASDAQ:CGC) are down 4.9%, while smaller Tilray (NASDAQ:TLRY) has tumbled 15% and Aurora Cannabis (NASDAQ:ACB) is down 21.6%.
I suppose there are any number of theories for why this might be: worries that the Democrats will not, in fact, sweep the White House, House of Representatives, and U.S. Senate, ushering in a "green" new deal of an entirely different sort -- or simply the law of gravity, and the knowledge that what goes up, must come down.
However, I prefer to think that whenever possible, investors respond to facts rather than theories --and the fact is that all three of these cannabis companies reported earnings yesterday.
And the fact also is that those earnings were not great.
Let's begin at the top (by market capitalization) with Canopy Growth, and its second-quarter 2021 results reported before market open yesterday. On the one hand, Canopy Growth reported $102 million in Q2 sales, 75% ahead of last year's Q2 haul (according to data from S&P Global Market Intelligence) and well ahead of Wall Street estimates. On the other hand, though, Canopy Growth continued to lose money -- $24 million for the quarter -- and burn cash. Negative free cash flow for the quarter was $143 million.
The numbers at Aurora Cannabis were almost a mirror image of what we saw at Canopy -- and even worse news for investors. Instead of rising, sales stalled out and fell 10% year over year, to $51 million. Net earnings a year ago flipped to a net loss of $81 million in Aurora's fiscal first quarter of 2021. And free cash flow, while not as negative as a year ago, was still quite negative at $93 million.
Finally, Tilray's results looked a bit more like Canopy's than Aurora's. Sales grew, albeit less than 7% to $51 million. Losses shrank, but the company still lost $2 million. And once again, the size of the cash bonfire dwarfed reported results, as Tilray burned through $26 million in negative free cash flow.
On Wall Street, all three of these stocks went soaring yesterday, and in the face of such enthusiasm, the only stock that analysts were prepared to criticize in public was Aurora Cannabis. Specifically, investment bank Stifel Nicolaus called the report "negative."
But even there, Stifel wasn't prepared to come right out and tell investors to take profits on Aurora, despite the stock being up 137% in a week.
Today, however, investors seem to be rethinking that advice. Over the past 12 reported months, months in which cannabis was legal to sell and use in Canada, and in many U.S. states, Tilray has still managed to lose $488 million, Canopy Growth $1.2 billion, and Aurora Cannabis $2.6 billion.
Marijuana legalization across the rest of the United States might change that -- or might not -- and in any case, with control of the Senate still in doubt, there's no guarantee that nationwide legalization will in fact happen. In the face of the prospect of continued months, quarters, and perhaps even years of losses still ahead, taking some profits off the table after yesterday's amazing rally sounds like a really good idea to me.