Investor excitement about the legal marijuana industry continues to grow. In recent months, and in particular after Canada's move to legalize recreational pot use for adults last year, the burgeoning industry seems to have taken off. Investors have poured money into a growing list of companies in an effort to get in on the ground floor of the new space.
Many of the marijuana industry's leading companies have nearly a year of reporting financial reports under their belt, giving investors a first-look into how those investments are faring. Let’s take a look at some of the numbers reported by prominent cannabis companies like Cronos Group (CRON), Tilray (TLRY), Aurora Cannabis (ACB), and Canopy Growth (CGC) to see if there's a clear winner.
- Canadian marijuana companies have struggled of late as growth appears to be strong, but slowing.
- Major players, such as Aurora Cannabis and Canopy Growth, have seen shares fall nearly 70% in the last twelve months.
- Going forward, companies will be looking to legalization in the U.S. to drive growth, as well as the introduction of new products, such as edibles and cannabidiol (CBD)-related goods.
Looking at Returns Alone
Before examining the financials, it's worth noting that several of the top marijuana companies have seen drastically different returns, however, all their stock prices have suffered.
Aurora Cannabis shares are down 69% in the last year and down 31% in just the last month. Aurora, with its $3.7 billion market capitalization, is one of the larger players in the space. Unlike peers Canopy Growth and Cronos, Aurora has not taken an investment from larger beverage or tobacco companies. Canopy Growth calls Constellation Brands an investor, while Cronos calls Altria an investor.
Canopy Growth shares have fallen 65% in the last year, with Tilray down 87% and Cronos Group down just 28%. Canopy is one of the largest players in the industry, with a $6.9 billion market cap, which hopes to capture more market share next year with edibles, vapes, and cannabidiol (CBD) products.
Different Approaches to Growth
Some of the top companies chose to invest in scaling more heavily than others. Cronos and Tilray, for example, both took losses as a result of heavy spending in order to increase production and distribution capacities. While this may mean those companies had a (comparatively) lackluster quarter, they stand to benefit going forward. In the future, Cronos and Tilray may be better prepared to handle the increased demand following the Canadian legalization proceedings and their efforts could result in greater market share down the line.
Aurora Cannabis, on the other hand, has had success in making money. However, much of those gains were from the company's investments, rather than its growth and production business. Canopy's significant losses may be attributable to the success of its share price, which led to higher stock compensation costs as well as fair-value adjustments which ended up diminishing the quarter's income.
That's all to say it's difficult to pick a clear winner based on quarterly earnings. The industry has become well-enough established that several key players have emerged, but it remains to be seen who the real winners will be as more of the U.S. legalize recreational marijuana.
It's likely that the different strategies these and other firms employed to prepare for that rollout will result in vastly different levels of success going forward. Considering that the industry is still growing and the dynamics of supply and demand are still very much in flux, it's likely that the legal cannabis industry will undergo plenty more growing pains before cooling off. In the meantime, it's anyone's guess as to which of these companies will end up on top.