Written by: Jay Yi, MBA; Edited by: Chris Thompson, CFA, MBA, P.Eng
eResearch | This week, numerous U.S. cannabis operators released Q2/2019 earnings, with companies reporting impressive top-line growth but most still struggling to turn a profit. As more than 75% of U.S. states now have some legal form of cannabis, with anticipation for U.S. federal reform on cannabis laws, companies are focused on scaling their businesses through acquisition rather than making profits.
Unlike technology companies that can afford to lose money early to scale quickly later through their online platforms, cannabis companies generate revenue through growing and making consumable products, which brings more concern for their consistently growing losses.
Below are Q2/2019 earnings updates on major U.S. cannabis operators including: Curaleaf, Slang Worldwide, Origin House, and iAnthus.
Curaleaf Q2/2019 Highlights – August 27, 2019
Total revenue including revenue from managed entities was US$55.1 million, a 35% increase quarter-over-quarter, attributed to retail and wholesale revenue increasing to US$37.7 million.- Pro forma revenue including acquisitions of Select and Grassroots was US$110.9 million.
- Operating expenses were US$39.7 million, a 32% increase quarter-over-quarter.
- Gross margin was 40%, with little change compared with the previous quarter.
- Net loss was US$24.4 million, a 123% increase quarter-over-quarter, partially due to an increase in depreciation & amortization, stock-based compensation, and acquisition related costs.
- Cash balance was US$107.3 million.
Slang Worldwide Q2/2019 Highlights – August 27, 2019
Revenue was US$7.2 million, a 44% increase quarter-over-quarter, due to growth in operations in Nevada and Oregon, positive changes in product mix, and the initiation of sales for a new vape product.- Pro forma revenue including acquisition of assets within the SLANG network was US$22 million.
- Operating expenses were US$12.8 million, a 1.5% increase quarter-over-quarter.
- Gross margin increased to 35% compared with -6% the previous quarter.
- Although Net Income was US$17.5 million, a 100% increase quarter-over-quarter, $26.6 million of income was due to non-recurring adjustments to Financing Costs and Fair Value Adjustment to Option Values, without this adjustment, Slang would also have had a large loss.
- Cash balance was US$18 million.
iAnthus Q2/2019 Highlights – August 27, 2019
- Total revenue increased to US$19.2 million, a 100% increase quarter-over-quarter.
- Pro forma revenues including acquisition MPX Bioceutical increased to US$25 million, a 35% increase quarter-over-quarter.
- Gross margin increased to 52.4% compared with 23.4% the previous quarter, mainly due to productivity improvements and increased utilization in Arizona, Florida, Massachusetts, Maryland, and Nevada.
- Operating expenses were US$39.7 million, a 71% increase quarter-over-quarter.
- Net loss was US$9.3 million, a 43% decrease quarter-over-quarter, mainly due to an increase in salaries & benefit expenses and acquisition expenses related to MPX Bioceutical.
- Cash balance of US$30.5 million.
Origin House Q2/2019 Highlights – August 28, 2019
Revenue was C$21.4 million, a 91% increase quarter-over-quarter, mainly due to increase in market share and retail shelf space in California.- Operating expenses were C$23.5 million, a 29% increase quarter-over-quarter, mainly due to an increase in general and administrative expenses.
- Gross margin increased to 21% compared with 15% the previous quarter.
- Net loss was C$34.9 million, a 100% increase quarter-over-quarter, mainly due to transaction costs and non-cash balance sheet adjustments made for the acquisition by Cresco Labs.
- Cash balance of C$14.8 million.
Acquisitions are constantly occurring in an effort for companies to expedite growth beyond organic investments. Though this is reflecting huge revenue growth for these businesses, there are far from many who are making any profits.
Though investors understand that profitability comes second in a first mover environment, cannabis companies will soon have to execute on sustainable growth that will appreciate share holder value.
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Curaleaf Holdings Inc. (OTC: CURLF CNSX: CURA)
- Headquartered in British Columbia, Canada, Curaleaf, formally Lead Ventures Inc., is a vertically integrated multi-state cannabis company managed by pharmaceutical and medical professionals with decades in experience.
- It has recently experienced high growth in brand recognition across the United States as it has completed numerous acquisitions to expand its product reach.
- CURA is currently trading at C$9.20 per share with a C$3.1 billion market capitalization.
SLANG Worldwide Inc. (OTC: SLGWF; CNSX: SLNG)
- Headquartered in Toronto, Canada, SLANG is a cannabis consumer packaged goods company that develops, markets, and distributes a portfolio of branded cannabis products across 2,600 stores in the U.S.
- SLNG is currently trading at C$0.82 with a market capitalization of C$173.8 million.
iAnthus Capital Holdings, Inc. (OTC: ITHUF; CNSX: IAN)
- Headquartered in New York, U.S., iAnthus is an owner and operator of licensed cannabis cultivation, processing, and dispensary facilities through the U.S.
- ITHUF is currently trading at C$3.30 with a market capitalization of C$514.2 million.
CannaRoyalty Corp. dba Origin House (OTC: ORHOF; CNSX: OH)
- Headquartered in Ottawa, Canada, Origin House, formerly known as CannaRoyalty, is a private equity firm specializing in cannabis acquisitions in the U.S., specifically in California.
- ORHOF is currently trading at US$5.40 with a market capitalization of US$359.9 million
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