A Major Difference Between Leading Cannabis Companies and 13 Stories from New Cannabis Ventures

This is a copy of the December 2nd edition of our weekly Newsletter, which we have been publishing since October 2015.

A little more than a year ago, noting how quickly the publicly-traded cannabis stocks were beginning to track the real cannabis industry, we debuted the Public Cannabis Company Revenue Tracker, which is professionally managed by New Cannabis Ventures. Traders, investors and hedge funds alike have latched on to the data in this tracker to better understand the imbalance between cannabis companies operating within North America. With the completion of earnings season this week, we note that there are now 13 companies that generated US$10 million or more in their most recently reported quarter. Nine of these companies report in USD, while the other four report in CAD.

While we believe that revenue levels and growth rates are the primary metric investors are tracking in order to judge whether a company is even worth looking at to begin with, we expect the focus will start to include measures of profitability in 2019 as the industry continues to grow. Already we have noticed market participants doing a better job at no longer being misled by silly penny stock press releases, but instead starting to better evaluate and understand financial statements. For those who have been following us, you know we are excited about more diligent investors.

Among the thirteen companies below, we note that there are some extreme differences, even for those that are similar operationally. The large revenue producers include four different types of companies, including four Canadian licensed producers (LPs), six American multi-state operators (MSOs), two CBD from industrial hemp companies and one ancillary company.

We aren’t going to weigh in on the individual companies in terms of judging the prudence of their spending levels, but we wanted to make sure are readers are aware of these differences. Those companies generating massive operating losses may be pursuing the smart strategy by investing aggressively ahead of scaling up further, or they may be wasting money. Alternatively, some of the companies generating profits may be missing opportunities to build durable franchises.

The table below provides in USD (converted at .752 for companies that file in CAD) levels of revenue, operating profit and operating cash flow for the most recent quarter. With the exception of Aphria, which most recently reported its FY19-Q1 ending in August, and KushCo Holdings, which reported its FY18-Q4 ending in August, all of the companies reported financials for the quarter ending in September. We divide the operating income by the revenue and then rank the 13 companies on this metric. Note that companies that use IFRS accounting instead of GAAP accounting may see operating income boosted by one-time changes in the fair value of biological assets.

While revenue has been the primary metric thus far, this is likely to change as the industry continues to scale up, with investors looking to other metrics, like operating income, EBITDA or even free cash flow. Investors should be aware of spending levels and try to assess them. Is the company wasting money? Is it not spending enough? One thing is certain: If investors don’t see management as good stewards of capital, then the flow of capital will shut off, which could be detrimental to the share price as well as the ability to achieve corporate goals.

We would like to congratulate our client, Cresco Labs, a multi-state cannabis operator which will begin trading publicly on the CSE on Monday with the symbol “CL”. To learn more visit the company’s page on NCV and click the green Get More Info button.

New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most interesting business content from this week:

After the tremendous success of the first Cannabis Capital Conference in Toronto this summer, we are excited to be working with Benzinga again for its next event that is designed for North American cannabis investors and entrepreneurs, which will take place next month in sunny Miami Beach.

Get your ticket and be sure to use code “420ALAN”

To get real-time updates download our free mobile app for Android or Apple devices, like our Facebook page, or follow Alan on Twitter. Share and discover industry news with like-minded people on the largest cannabis investor and entrepreneur group on LinkedIn.

Use the suite of professionally managed NCV Cannabis Stock Indices to monitor the performance of publicly-traded cannabis companies within the day or over longer time-frames. In addition to the comprehensive Global Cannabis Stock Index, we offer a family of indices to track Canadian licensed producers as well as the American Cannabis Operator Index.

View the Public Cannabis Company Revenue Tracker, which ranks the top revenue producing cannabis stocks that generate industry sales of more than $2.5m per quarter.

Discover upcoming new listings with the curated Cannabis Stock IPOs and New Issues Tracker.

Consider subscribing to 420 Investor, Alan’s comprehensive stock due diligence platform since 2013 for more in-depth information and market intelligence about the publicly traded cannabis sector.

Discover your place in the cannabis industry by visiting our Careers and Jobs Page and learn which companies are hiring aggressively.


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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