Losses In Canada's Pot Sector Could Shift Interest To U.S. Companies
Investing.com | Aug 27, 2019 06:13AM ET
Investors in the cannabis sector on both sides of the Canada-U.S. border should take added interest in several upcoming earnings reports this week as the findings could signal a significant shift in the direction the sector takes in the short- to mid-term.
Much of the attention to date has gone to the larger marijuana companies. And with the exception of Tilray (NASDAQ:TLRY), these companies are mostly Canadian-based. They all got early endorsement from investors as they were operating in the first nationally legal marketplace. But many of them have watched their share prices drop – especially since April – as they continue to post significant losses.
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This week, however, with several smaller U.S. cannabis growers scheduled to unveil their latest quarterly earnings, focus on smaller operators could show a new trend. None are expected to post a profit, but it will be notable to see if any provide guidance that includes a timeline for expected profitability. That sign, especially if sent by more than a few companies, could serve as a significant marker that will encourage investors to divert larger sums of capital to cannabis companies in the U.S., and infuse smaller marijuana growers with needed capital.
Timeline To Profitability
Sharp contrasts on the timeline to profitability between cannabis companies on opposite sides of the Canada-U.S. border could also shake up the industry. A delay in reaching profitability by the big boys in Canada could prove to be an opportunity for the smaller players in the U.S. Timing coupled with impatience might prove to be a combination that triggers the shift.
The stage might already be set. Just look at what happened yesterday. Constellation Brands (NYSE:STZ) disclosed it will post a record US$54.8-million loss in the current quarter stemming from its multi-billion-dollar investment in the biggest cannabis company on the planet, Canadian-based Canopy Growth (NYSE:CGC), (TSX:WEED).
The company behind Corona beer made the disclosure as part of a regulatory statement, which comes in the wake of a statement made by Canopy CEO Mark Zekulin, stating the cannabis grower will not be profitable for another three to five years.
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In November 2018, Constellation made a US$4-billion (C$5.3 billion) investment in Canopy, gaining a 56% stake in the company. It was looking to capitalize on the legalized sector. But profits did not follow.
In June, Constellation executives did not shy away from letting analysts know they were not pleased with the mounting losses at Canopy. These statements were quickly followed by the firing of Bruce Linton, Canopy’s founder and CEO.
Impatience Hitting Sector
This impatience has had an impact on the entire sector. It is also raising questions. Could smaller companies be more nimble and meet investor expectations on profitability?
Time, of course, will tell. But for now keep an eye on guidance statements.
What To Watch
The U.S. cannabis companies reporting this week include one of the largest American players – Curaleaf Holdings (OTC:CURLF).
Headquarted in Wakefield, Massachusetts, Curaleaf is focused on the medical and wellness components of marijuana use. With a US$2.98-billion market cap, it operates in 12 states, including Florida, New York, New Jersey and Massachusetts; owns 44 dispensaries, 12 cultivations facilities and 11 processing sites. It unveils its second quarterly report after the closing bell later today.
Also reporting today before the markets open is iAnthus Capital Holdings (OTC:ITHUF). Not a huge player in the sector, the New York-based company owns and operates cannabis cultivation and processing facilities across the U.S., including 23 dispensaries in Florida, Arizona, New York, Vermont and New Mexico. It has a market cap of US$437.44.
Tomorrow, Green Thumb Industries (OTC:GTBIF) will unveil its second quarter earnings after the markets close. The Chicago-based cannabis retailer with a US$1.01-billion market cap yesterday announced a US$59.6-million cash and stock purchase of Fiorello Pharmaceuticals, one of only 10 companies that has been approved to operate as a medical cannabis company in New York. Green Thumb also owns the luxury cannabis brand known as Beboe. It trades on the over-the-counter market in New York under the ticker GTBIF and on the Canadian Securities Exchange at Green Thumb Industries (CSE:GTII).
On Aug. 29, Planet 13 Holdings Inc (OTC:PLNHF) and Harborside Inc (CSE:HBOR) will both report after the markets close.
Planet 13 is a relatively small company, with a market cap of US$249.47 million. It operates the largest pot shop in the world in Las Vegas. California-based Harborside, with a market cap of C$34.2 million (US$25.8 million), was founded in 2006 and was granted one of the first six medical cannabis licences issued in the U.S. It also made the first legal cannabis sale in California. It went public in June, trading on the CSX (NASDAQ:CSX) in Toronto under the ticker HBOR.
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