Marijuana News Today: Market Takes a Dive Following Quarterly Results

Marijuana News Today
iStock.com/Yarygin

Marijuana News Today

The marijuana news today is not quite what marijuana investors wanted to see; many quarterly reports came out this week, but few showed positive numbers across the board.

Aurora Cannabis Inc (NYSE:ACB), Cronos Group Inc (NASDAQ:CRON), Canopy Growth Corp (NYSE:CGC), and Tilray Inc (NASDAQ:TLRY) all released fiscal reports this week, and while their success varied, ultimately marijuana stock prices fell as a result of these financial statements not living up to expectations.

By and large, we’re seeing an increase in losses in several of these companies, which coincides with increased spending, even if revenue, sales, and supply growth are all up.

While we’ll be taking a more in-depth look at the CGC stock and TLRY stock reports below, we can extrapolate several generalizations that apply to the legal marijuana industry as a whole.

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First, we’re seeing a booming marijuana industry in Canada. So booming, in fact, that the demand is still outstripping supply.

“Over the last year we kept hearing about all this capacity that people were building out and when we went to buy some of that supply, it’s just not available, people tended to exaggerate their capacity,” said Tilray CEO Brendan Kennedy.

“The second thing we’re seeing is there’s far less quality supply than expected.” (Source: “Tilray ready to move into U.S. cannabis market if farm bill passes,” Financial Post, November 13, 2018.)

This is part of the reason that we’re seeing a little bit of weakness in the marijuana quarterly results.

Furthermore, the statements speak to a nascent industry that still has a ways to go in terms of growth, which is a good thing for investors.

The spending, losses, and overall reinvestment toward the future is what you want to see from an industry that is just now learning to walk. Marijuana is so young as a market that spending now in an effort to encourage global expansion and supply capacity growth is exactly what you want to see if you’re a long-term investor.

So while these numbers are not precisely what we wanted to see, they still show a burgeoning and powerful industry that is going through growing pains.

These numbers should by no means induce a panic in investors. Selling off now would be, in my view, a poor strategy considering how much potential there is yet to be mined from the marijuana industry.

TLRY Stock

One of the most impactful quarterly reports of the marijuana news today is Tilray’s.

Here are some of the highlights:

  • Revenue increased to $10.0 million, up 85.8% compared to the third quarter of last year. The increase in revenue was driven by increased patient demand, bulk sales to other Licensed Producers, and accelerated wholesale distribution in export markets.
  • Total kilogram equivalents sold increased over twofold to 1,613 kilograms from 684 kilograms in the prior year.
  • Average net selling price per gram was $6.21 compared to $7.53 during the previous quarter. The reduction in 2018 compared to 2017 was primarily due to an increase in bulk sales as a percentage of total revenue.
  • Net loss for the quarter was $18.7 million or $0.20 per share compared to $1.8 million or $0.02 per share for the third quarter of 2017.

“The cannabis industry remains very robust and we are pleased with our revenue momentum and strategic achievements in the third quarter,” said Kennedy. (Source: “Tilray, Inc. Reports Third Quarter 2018 Earnings,” Financial Post, November 13, 2018)

The numbers, overall, show the losses I mentioned at the top of this article and help explain why the marijuana industry took a hit like it did today.

Tilray stock, for instance, was down big to start the day. It dropped about nine percent this morning.

I’ve long been skeptical on the long-term outlook for TLRY stock due to its massive growth since its initial public offering (IPO), but the company impressed me with its long-term outlook, if not its numbers.

TLRY management claims to be looking into international expansion, particularly in the U.S., which would help drive stock prices up. If it is able to execute a move whereby it taps into the U.S. market, expect its fortunes to turn around.

CGC Stock

On the opposite side of Tilray we have Canopy Growth, a company that has one of the best long-term outlooks in the cannabis industry.

Despite the strength of its long-term prospects, the recent quarterly report fell short of expectations, causing an 11% drop today.

CGC stock saw a loss of CA$330.6 million in the latest quarter, exceeding analyst exceptions. The increase in loss was primarily driven by operating cost increases as a result of Canadian marijuana legalization.

Revenue, meanwhile, jumped to CA$23.3 million from CA$17.6 million a year ago but down sequentially from CA$25.9 million in the previous quarter. (Source: “Canopy Growth Corporation Reports Second Quarter Fiscal 2019 Financial Results,” Canopy Growth Corporation, November 14, 2018.)

The slowdown in quarterly revenues stemmed from “hiccups” in shipping medical cannabis to Germany and medical patients being distracted by Canada’s impending legalization of recreational pot on October 17, said CEO Bruce Linton.

He also said that there was little revenue during the quarter from the Canadian adult use market, only shipments “stress testing” the system with provinces and territories.

“I would attribute half of the decline to not-normal-course Germany, and a little bit of a pause with the medical people … It is the first time in our history that I’m aware of that we actually had a slowdown, but it was more of a distraction than a pattern,” Linton told analysts on a conference call Wednesday. (Source: “Canopy Growth reports Q2 loss on ramped up spending ahead of pot legalization,” CTV News, November 14, 2018.)

While these numbers are hardly reassuring, they are not ultimately going to doom what I deem to be the most exciting marijuana stock in the sector.

TLRY and CGC Stock Performances

The TLRY stock (black line) and CGC stock (blue line) performances from the past week are seen on the chart below:

Chart courtesy of StockCharts.com

Analyst Take

The numbers coming out of the latest quarterly reports are not exactly turning heads—or at least, not the way that marijuana bulls want them to.

At the same time, this is one poor showing, and not an unexpected one at that. The hype surrounding Canadian marijuana legalization coupled with the supply troubles almost certainly meant that these numbers would disappoint.

While it is a missed opportunity to grow share prices, there is still plenty to be excited about in the sector moving forward. What we need to see now is the next event break in the news that will help end the marijuana correction and send stocks soaring.