What We Learned During Cannabis Earnings Season

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Late Friday evening, a flurry of last-minute filings hit SEDAR, mainly from companies that didn’t have good things to say, signalling an end to what we think was the most important earnings season yet for the nascent publicly-traded cannabis industry. Four weeks ago, ahead of the news, we shared our perspective of 7 Key Questions for Cannabis Companies During Earnings Season that we expected would be answered. So we want to circle back and see how it played out.

Who’s on First?  

We wondered which MSO would have bragging rights for the next few months as being the revenue leader, and, while it was close, Trulieve continues to execute phenomenally in Florida, allowing it to edge out Curaleaf and GTI. Canopy Growth was able to regain the lead over Aurora Cannabis, but, the big surprise was that all three of the leading MSOs beat out the two Canadian LPs.
One of the more interesting points of discussion on a few of the MSO calls was same-store sales growth. It can be challenging to understand exactly how a company is growing when it is expanding into new states and adding additional stores and production facilities in states in which it already has existing operations, so we were pleased to learn that at least some of the MSOs are growing their older assets at such a robust rate. We hope that other companies will provide this level of disclosure in the quarters ahead.

Deal or No Deal?  

After MedMen and PharmaCann abandoned their merger just ahead of its pending closure and Cresco Labs and Curaleaf had amended the terms of pending deals, we thought perhaps Harvest would end its pending merger with Verano Holdings. While it didn’t, the company did substantially reduce the pending acquisition of Pennsylvania-based CannaPharmacy by agreeing to buy only a cultivation and processing facility. Cresco Labs also walked away from its pending acquisition of Florida-based VidaCann.

Vanishing Vapes?  

The vaping crisis accelerated late in the third quarter, and we had hoped to learn about trends subsequent to September. The commentary from many MSOs suggested that the initial impact was negative, but the recovery subsequent has been robust. In what we think was one of the more positive aspects of earnings season, the cannabis industry appears to have survived this threat.

Who Will Show Me the Money?  

Investors have become, rightly, more focused on balance sheets and cash flows as equity capital available to the industry has dried up. We had expected that investors would reward the operators with continued access to capital and the ability to demonstrate spending control, and that was the case. There was a flood of sale/leaseback activity during November that reinforced this point as well.

Is There a HEXO Hex?  

HEXO Corp had shocked the market in October with its weak Q4 ending July 31, and the company had warned about issues like pricing and budgeting for potential returns from provinces. Unfortunately, the issues the company conveyed weren’t limited to just HEXO, and there were many short-falls across Canadian LPs as the first year of legalization was wrapping up.

Who Will Lead the Leader?  

We had thought that perhaps Canopy Growth would announce a new leader, but it didn’t do so, which disappointed many of the analysts and presumably investors as well. While we didn’t get the answer during earnings season, we expect we could learn as early as Monday, as the company is hosting an analyst meeting on Tuesday and a tour for them on Tuesday in Smiths Falls.

Did the CBD Slowdown End?  

Ahead of earnings reports from CV Sciences and Charlotte’s Web, Elixinol Global had reported a sequential decline in sales from hemp-derived CBD, and we were wondering if this was company-specific or related to industry trends. CV Sciences saw a sharper decline that left its year-over-year growth negative, while Charlotte’s Web saw flat sales sequentially but grew from a year ago. Both companies detailed a highly competitive market with irrational pricing by some of the recent entrants and consumer confusion.

The next earnings season begins in mid-February and runs through the end of April, covering the 4th quarter for many companies. We are looking forward to hearing some early perspective on Canada’s expanded product offerings and seeing how companies across the sector are prioritizing growth opportunities as they likely continue to struggle with limited capital availability. We will be sure to follow up with an updated set of key questions then.

After completing a transformational acquisition earlier this year and through its own organic growth, iAnthus is now generating substantial revenue as it operates in 11 states. On its recent conference call to discuss its quarterly financials, CEO Hadley Ford stated that the company is well on its way to positive EBITDA in 2020 and is looking forward to continued expansion in Florida, New Jersey and New York. Get up to speed by visiting the iAnthus Investor Dashboard that we maintain on their behalf as a client of New Cannabis Ventures. Click the blue Follow Company button in order to stay up to date with their progress.

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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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