The world’s three biggest pot stocks are expected to let markets know how they’ve been performing this week.
Aurora Cannabis Inc. (ACB) is scheduled to announce fiscal 2018 earnings Monday evening, Tilray Inc. (TLRY) is poised to release fourth-quarter 2018 results on Tuesday and Canopy Growth Corp. (CGC) is due to report after the final bell on Thursday. Cannabis grower Auxly Cannabis Group Inc. (XLY) is also set to update markets at some point during the week.
Pot stocks have been on a tear this year after a challenging fourth quarter, indicating that investors have high expectations heading into result seasons. Here’s a breakdown of what analysts are forecasting, together with a rundown of other important things to look out for.
More Bumper Revenue Growth
Canada legalized recreational weed on Oct. 17, so sales are expected to soar. Eight Capital analyst Graeme Kreindler predicted significant quarter-over-quarter growth in revenue, according to Bloomberg.
Those expectations won’t come as a huge surprise to investors. Aurora guided for a 327% rise in sales from the same period a year ago and analysts have been penciling in big top-line growth at Canopy and Tilray, too.
Auxly could be an exception. The Toronto, Canada-based company was mainly a royalty company until early last year and many of its licensed partners aren't expected to begin yielding production until well into 2019, according to The Motley Fool.
Higher Costs to Weigh on Profits and Cash Flow
Higher sales are expected to come at a cost once again. Chasing growth opportunities in Canada and the U.S., where hemp-derived CBD is now legal, are predicted to yield wider operating losses across the sector as companies ramp up capacity to meet increased demand.
Kreindler estimated that high costs will result in no meaningful cash flow or earnings before interest, taxes, depreciation and amortization. Nevertheless, companies are likely to point out that they are well financed, particularly Canopy, which last November received a $4 billion equity investment from Constellation Brands Inc. (STZ) and Aurora, which recently completed a C$345 million convertible senior note financing.
Clarity on Shortages
Investors will be anxious to discover how much shortages in Canada will impact trading in the coming months. Though marijuana is now legal in the country, the drug is not yet readily available everywhere.
Ontario, the most populous province, still doesn’t have any physical stores, while Quebec shut its government-run pot shops three days a week and Alberta temporarily stopped issuing retail licenses. The question investors will be asking is if these problems have been sorted out quick enough to lift sales in the current quarter.
Expect lots of attention to be focused on U.S. expansion plans, too. The legalization of hemp-derived CBD is predicted to throw up plenty of opportunities, yet companies have yet to give any concrete indication of how they plan to capitalize — and how much this will cost.
For example, investors will want to hear more details about Canopy’s plans to spend as much as $150 million on a hemp industrial park” in New York state.