7 Key Questions for Cannabis Companies During Earnings Season

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This week we enter the last earnings season of 2019. The industry, mired in a capital crunch and vanishing retail demand for stocks, has a lot on the line. Over the balance of November, we think many critical questions will be addressed if not answered. As a reminder, the Cannabis Earnings Conference Call Calendar will help you stay on top of the reporting schedule.

Who’s on First?

The Public Cannabis Company Revenue & Income Tracker allows our readers track the progress of the largest publicly-traded cannabis companies and ancillary product and service providers. For several quarters, Trulieve has held the top spot for MSOs (and the second spot overall currently, behind GW Pharma, for companies reporting in American dollars), but, based on analyst projections, Curaleaf may surpass it this quarter. Similarly, in Canada, Aurora Cannabis took the top spot from Canopy Growth last quarter, but analysts project Canopy to regain it this quarter.

Deal or No Deal?

There are several pending transactions for MSOs, and some are certainly in doubt. Already, MedMen and PharmaCann ended their attempt at merging, and Cresco Labs revealed last month that it is renegotiating its potential merger with Origin House. This week, Curaleaf affirmed its intent to acquire Cura Partners, but it restructured the deal to have less consideration on the front-end. Investors seemed disappointed, as the stock sold off sharply following the news. One of the biggest pending mergers is the potential acquisition of Verano Holdings by Harvest Health & Recreation, and investors will potentially learn of its fate.

Vanishing Vapes?

The vaping crisis didn’t hit until the end of the quarter, but we may learn of any impact it has had based on the reported numbers or through commentary in press releases or conference calls. KushCo Holdings, which is heavily leveraged to vaping, reports its fiscal Q4 ending in August (so entirely before the media attention) this week, but it will likely address market trends subsequent to August.

Who Will Show Me the Money?

Investors will be scrutinizing companies with low cash balances and high operational use of cash, trying to assess the path to profitability. We think it is imperative for companies to discuss access to capital and the ability to control spending. The negative reaction to MedMen’s report this week is likely a harbinger of what’s to come for those companies that are not able to instill confidence.

Is There a HEXO Hex?

HEXO Corp severely disappointed the market in October, missing its Q4 revenue projection, retracting its FY2020 guidance, posting a huge operating loss and raising capital at a relatively low price. LP investors will learn this month whether or not pricing, which HEXO blamed, is under as much pressure as the company suggested. On the conference call, its CEO suggested that inventories are too high across Canada and that competitors will need to adjust pricing lower.

Who Will Lead the Leader?

Canopy Growth hasn’t scheduled its call yet, but it is likely on November 15th. On the last call, it suggested that it would name a new CEO by year-end, and it’s possible that the announcement will coincide with the earnings release. If not, investors are likely going to want an updated time-line, as it has been four months since it fired Bruce Linton. Importantly, investors want to learn how things might be different going forward for the company under the new leadership.

Did the CBD Slowdown End?

Despite the growing consumption of CBD products, the publicly-traded companies selling them have seen sales growth slow down a bit so far in 2019 for a variety of reasons. Elixinol Global was the first to provide an update, and its revenue, the majority of which is derived from CBD products, fell 3% from Q2. CV Sciences, which saw 13% sequential growth last quarter, reports this week, while the larger Charlotte’s Web, which saw 15% sequential growth in Q2, reports most likely in the following week (not yet scheduled). While both companies have continued to grow, the growth in Q2 compared to the prior year’s Q2, at 36% for CV Sciences and 48% for Charlotte’s Web, has slowed substantially. In Q4, year-over-year growth was 96% for CV Sciences and 71% for Charlotte’s Web. Both of these companies have substantially expanded distribution, especially of topicals, this year, so investors are likely expecting a pick-up in growth.

Clearly there will be a lot to digest in the next few weeks, and how this earnings season plays out will likely influence investor sentiment as we head into 2020. Buckle up! It’s about to get busy. Stay tuned to the New Cannabis Ventures homepage or mobile app, as we will be posting the news that matters the most.

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Alan & Joel

Exclusive article by Alan Brochstein, CFA
Alan Brochstein, CFA
Based in Houston, Alan leverages his experience as founder of online community 420 Investor, the first and still largest due diligence platform focused on the publicly-traded stocks in the cannabis industry. With his extensive network in the cannabis community, Alan continues to find new ways to connect the industry and facilitate its sustainable growth. At New Cannabis Ventures, he is responsible for content development and strategic alliances. Before shifting his focus to the cannabis industry in early 2013, Alan, who began his career on Wall Street in 1986, worked as an independent research analyst following over two decades in research and portfolio management. A prolific writer, with over 650 articles published since 2007 at Seeking Alpha, where he has 70,000 followers, Alan is a frequent speaker at industry conferences and a frequent source to the media, including the NY Times, the Wall Street Journal, Fox Business, and Bloomberg TV. Contact Alan: Twitter | Facebook | LinkedIn | Email

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