What happened

Marijuana stocks are rallying today. At 11:25 a.m. EST on Tuesday, Canopy Growth (CGC 4.53%) was up a strong 10.1%, and cannabis rivals Aurora Cannabis (ACB 1.68%) and HEXO (HEXO) were doing even better, each up 11.4%.

And the reason all these stocks are doing well is Canopy itself.

Rising stock chart is labeled Cannabis Inc with dollar signs and marijuana leaves decorating

Image source: Getty Images.

So what

This morning, Canopy Growth announced its earnings for the fiscal third quarter of 2021, claiming record revenue of 153 million Canadian dollars ($120 million), up 23% year over year, and predicting that it will begin turning revenue into profit by the second half of fiscal 2022. Working off Canopy's somewhat accelerated financial calendar, this implies that the company is only a year away from profitability. Canopy says it sees potential for cannabis reform in the United States that will help it reach this goal.  

Implied in that promise of profits a year from now is the admission that Canopy Growth is not yet profitable today. Gross profit margins at the company plunged 15 full percentage points in the third quarter of 2021, versus the year-ago period, landing at just 16%. Net losses jumped more than 600%, to $829 million.

And Canopy burned through $135 million in negative free cash flow.

Now what

Despite all the negative numbers, Canopy Growth expressed optimism about the medium-term future. It predicted that with help from an opening-up of the U.S. market, it will accelerate its revenue growth from the 23% pace set in the third quarter, to 40% to 50% growth rates from fiscal 2022 through fiscal 2024.

The company also predicted that it will achieve positive adjusted EBITDA in the fiscal second half of 2022, positive operating cash flow by the end of fiscal 2023, and positive free cash flow in fiscal 2024.

All this news is specific to Canopy, so its qualified promise of profitability in a year doesn't mean that Aurora Cannabis and HEXO will also turn profitable alongside it. That being said, Canopy has set the stage for Aurora's own earnings report, which should arrive sometime in the next few days, and HEXO's report, due probably in late March.

Investors bidding up those shares today will hope that the news they have to report will be at least as good as what Canopy just reported -- and hopefully, even better.