eResearch | This past quarter, Canadian cannabis companies focused on consolidating operations, adjusting asset valuations, and launching Cannabis 2.0 derivative products, while U.S. cannabis companies increased production capacity and scaled retail stores in preparation for federal legalization of cannabis.
Canada and most legal U.S. states declared the cannabis industry an essential service during the COVID-19 pandemic, as cannabis starts to become categorized as a consumer staple such as alcohol and tobacco.
Canadian Cannabis Market
In Canada, cannabis companies invested aggressively into acquisitions and facility expansions to match an overestimated market, which resulted in unsustainable cash burn rates with weak balance sheets holding large amounts of goodwill and debt.
According to Statistics Canada, in June, national retail cannabis sales reached $201 million, an 8% increase month-over-month, which implies a $2.4 billion annualized run rate.
Aphria
In FQ4/2020, for the three months ended May 31, 2020, Aphria Inc. (TSX: APHA; NASDAQ: APHA) reported Revenue of $152 million versus S&P Capital IQ analysts’ consensus estimate of $148.3million, with an EPS loss of $0.39 versus the consensus estimate of a loss of $0.04.
Aphria reported a 5% increase in Revenue quarter-over-quarter, with strong growth in its adult-use segment, which was offset by a decrease in its wholesale business.
At the beginning of the quarter, Aphria reached the No.1 market share for sales in all products and categories in brick-and-mortar retail channels across all brands in Ontario.
However, Aphria reported a Net loss due to a $64 million impairment charge from assets in Latin America (“LATAM”), Jamaica, and Lesotho. Moving forward, Aphria plans to supply LATAM demand with cannabis produced in Canada.
In Europe, after recently receiving the Good Manufacturing Practices (“GMP”) certification from the European Union (“EU”), Aphria secured all necessary permits to supply the German market and is awaiting one last permit from Health Canada to send its first shipment.
In addition, Aphria filed a prospectus for a US$100 million At-The-Market program, which will remain in place until December 22, 2021, with proceeds expected to be used towards Canadian and international expansions, working capital, and general corporate purposes.
On the earnings call, Irwin Simon, CEO of Aphria, said,
“We remain well-positioned to fund the future growth in Canada and internationally, with just under $500 million in cash and liquidity. And as I always like to say, cash is definitely king here. We reduced our net debt position by approximately $73 million in the quarter. And finally, we made key decisions during the year to favorably monetize strategic investments.”
Aphria’s stock price is currently trading at $6.13 per share, a 24% decrease since the earnings announcement and a 26% decrease in the past year.
Aphria did not provide guidance for the next quarter.
Canopy
In FQ1/2021, for the three months ended June 30, 2020, Canopy Growth Corporation (TSX: WEED; NYSE: CGC) reported Revenue of $110 million versus S&P Capital IQ analysts’ consensus estimate of $98.6 million, with an EPS loss of $0.30 versus consensus estimate of a loss of $0.45.
Canopy increased Revenue by 2% quarter-over-quarter, driven by completing its value product line roll-out, significantly improving customer order fill rates, and pushing Cannabis 2.0 derivative product sales.
In the past quarter, Canopy reached the No.1 market share in Canada for medical sales and beverage sales, and the No.1 market share in Germany for flower sales.
Canopy currently has four Stock Keeping Units (“SKU”) of cannabis-infused beverages, which together holds the top market share in Canada for beverages, selling 1.2 million units this past quarter and accounting for 74% of total beverage sales this past year.
However, Canopy reported a Net Loss as its B2B flower business experienced a 20% decline in sales quarter-over-quarter, due to a 5% decrease in volume and a 15% decrease in average selling price.
Last month, to establish a stronger U.S. presence, Canopy launched ShopCanopy, an online platform in the U.S. offering hemp-derived CBD products with over 25 SKUs from brands such as First & Free, This Works, and BioSteel.
Canopy’s flower products have already entered the U.S. market through Acreage Holdings Inc. (OTC: ACRGF; CSE: ACRG.U), a U.S. cannabis producer who is expected to be acquired by Canopy once the U.S. federally regulates cannabis.
Acreage is currently selling Tweed-branded products in the U.S. through licensed intellectual property (“IP”) rights from Canopy, with additional rights to launch Canopy’s other best-in-class products and brands in the U.S.
Canopy’s stock price is currently trading at $22.30 per share, a 7% decrease since the earnings announcement and a 37% decrease in the past year.
Canopy did not provide guidance for the next quarter.
Cronos Group
In Q2/2020, for the three months ended June 30, 2020, Cronos Group Inc. (TSX: CRON; NASDAQ: CRON) reported Revenue of US$9.9 million versus S&P Capital IQ analysts’ consensus estimate of US$9.3 million, with an EPS loss of US$0.31 versus consensus estimate of US$0.07.
Cronos increased Revenue by 18% quarter-over-quarter, attributed to growth in the Canadian market as adult-use cannabis sales increased, with additional sales from the launch of Cannabis 2.0 derivative products, which includes adult-use brands, Spinach and COVE, and medical brand, PEACE NATURALS.
However, Cronos reported a Net Loss due to inventory write-downs, impairment charges, and increased investments in R&D, focused mainly at its research hub, Cronos Device Labs. In addition, Cronos invested in scaling activity at its recently acquired GMP compliant fermentation and manufacturing facility, Cronos Fermentation.
In the U.S., Cronos reported a Net Loss primarily due to increased investments in the development and launch of new U.S. hemp-derived CBD products through its recent acquisition of Redwood Holdings Group, LLC. Redwood sells products under the Lord Jones brand.
In the Israeli medical market, Cronos recently launched sales of its PEACE NATURALS line of cannabis products, shortly after announcing the successful delivery of its first shipment of bulk-dried flower from Canada to Israel.
On the earnings call, Michael Gorenstein, CEO of Cronos, said,
“As COVID-19 continues to impact global markets and global supply chains, we have seen an uptick in sales driven by consumer demand and growth in retail outlets in key provinces. Despite the strength we have seen and the continued store openings in some provinces, we remain cautious knowing that the shock to the economy could potentially have negative impacts on our industry.”
Cronos’ stock price is currently trading at $7.12 per share, a 7% decrease since the earnings announcement and a 54% decrease in the past year.
Cronos did not provide guidance for next quarter.
U.S. Cannabis Market
In the U.S., although cannabis is federally illegal, the cannabis market is surging with acquisitions and expansions as many states enable the legal sale of cannabis, both recreationally and medically.
With anticipation for U.S. federal legalization of cannabis rising, U.S financial institutions started to accumulate U.S. cannabis stocks as more retail investors seek investment opportunities in the cannabis industry.
- Putnam Investments LLC owns six million shares or 5% of the outstanding float of 4Front Ventures Corp. (CSE: FFNT), a U.S. multi-state operator.
- Wasatch Advisors, Inc. is the second largest stakeholder in Cresco Labs Inc. (CSE: CL), with additional investments in Green Thumb Industries (OTC: GTBIF; CSE: GTII), both U.S. multi-state operators.
- Advisor Shares announced plans to launch a U.S. cannabis focused exchange-traded fund (“ETF”) by the end of this month, which would make it the first NYSE-listed fund with pure exposure to U.S. cannabis stocks.
Curaleaf
In Q2/2020, for the three months ended June 30, 2020, Curaleaf Holdings Inc. (OTC: CURLF; CSE: CURA) reported Revenues of US$117 million versus S&P Capital IQ analysts’ consensus estimate of US$109.7, with an EPS loss of US$0.00 compared with consensus estimate loss of US$0.04.
Curaleaf increased Revenues by 22% quarter-over-quarter, stimulated by multiple acquisitions closed this year. Curaleaf is currently focused on scaling growth through acquiring assets, scaling production capacity, and diversifying operations across multiple states.
Curaleaf is the world’s largest cannabis company by revenue, as it has over 135 dispensaries and over 50 processing and cultivation licenses, with recent acquisitions expanding operations from 18 to 23 states.
This year, Curaleaf closed three key acquisitions, including cannabis operators BlueKudu, GR Companies Inc., and Select, in addition to closing acquisitions on three Arrow Alternative Care dispensaries in Connecticut.
Curaleaf’s quarterly pro forma revenue, including the closed and pending acquisitions, was US$165 million.
By the end of this year, Curaleaf expects to add 250,000 square feet of new production capacity in Arizona, Florida, and Massachusetts, in addition to a 110,000 square foot facility planned for New Jersey next year.
On the earnings call, Boris Alexis Jordan, Executive Chairman of Curaleaf, said,
“As the cannabis industry continues to consolidate and states announce expanded initiatives, my partners and I remain committed to funding up to $100 million for particularly attractive opportunities that may arise in this cash-constrained environment.”
Curaleaf’s stock price is currently trading at US$8.04 per share, a 4% decrease since the earnings announcement and a 30% increase in the past year.
Curaleaf Q3/2020 Guidance
- Revenue of approximately US$205 million to US$215 million, as businesses recovers in Massachusetts and Nevada from the pandemic.
- Managed revenue of approximately US$190 million to $200 million, which includes US$40 million of contribution from the recently acquired Grassroots.
Green Thumb Industries
In Q2/2020, for the three months ended June 30, 2020, Green Thumb Industries Inc. (OTC: GTBIF; CSE: GTII) reported Revenues of US$120 million versus S&P Capital IQ analysts’ consensus estimate of US$104 million, with an EPS loss of US$0.06 versus consensus estimate loss of US$0.01.
Green Thumb increased Revenue by 17% quarter-over-quarter, primarily driven by growth in segments including Consumer Packaged Goods and Retail.
This past quarter, Green Thumb opened six new retail store-fronts, now with 48 total stores across 10 states in the U.S., while also launching an e-commerce platform to support sales with delivery and curb-side pickup during the pandemic.
Same store sales increased by 75% year-over-year, based on 16 stores, and by 80% quarter-over-quarter, based on 40 stores.
Earlier this month, Green Thumb announced an exclusive partnership with Cookies, a premiere cannabis company who has over 50 cannabis product lines, with plans to open the first Cookies retail store in Nevada.
Moving forward, Green Thumb expects to start production at its Danville, Pennsylvania facility by the end of this year, ramp up production and distribution of brands in Ohio and New Jersey, and continue into phase 2 completion of its second production facility in Oglesby, Illinois.
On the earnings call, Ben Kovler, CEO of Green Thumb, said,
“More than ever, we remain bullish on the long-term prospects of our business. We operate in high-growth, high-potential markets as we execute our enter, open and scale strategy to distribute brands at scale. Our team remains resilient and adaptable and we are well-positioned to capitalize on the estimated $75 billion U.S. cannabis industry that is unfolding before our eyes.”
Green Thumb’s stock price is currently trading a US$14.17 per share, a 2% increase since the earnings announcement and a 74% increase in the past year
Green Thumb did not provide guidance for next quarter.
Trulieve
In Q2/2020, for the three months ended June 30, 2020, Trulieve Cannabis Corp. (OTC: TCNNF; CSE: TRUL) reported Revenues of US$121 million versus S&P Capital IQ analysts’ consensus estimate of US$107 million, with an EPS of US$0.06 versus consensus estimate of US$0.12.
Trulieve increased Revenue by 26% quarter-over-quarter, supported by growth in the Florida market, where 20% of Trulieve’s stores are located. In Florida, Trulieve maintained greater than 50% of market share in both flower and oil sales.
This past quarter, Trulieve opened five new stores in Florida, now with 52 stores across the U.S. and 56 total stores nationwide. Same store sales increased by 30% year-over-year, based on 26 stores.
Trulieve currently has 1.8 million square feet in production facilities, with construction scheduled for multiple 24,000 square foot facilities at the Jefferson County, Florida location, which are expected to be completed monthly by the end of this year.
The COVID-19 pandemic hampered new medical cannabis patients, as doctors’ offices could not give out medical license cards to consumers due to lockdowns. As doctors’ offices started to re-open, Trulieve experienced a surge in new patients from 180 new patients a week to a recent weekly high of 7,000 new patients.
On the earnings call, Kimberly Rivers, CEO of Trulieve, said,
“Trulieve is the only cannabis company in the U.S. who have achieved the scale of our cultivation operations plus our vast and growing store footprint, all primarily through organic growth. That earned experience and deep-seated skill set provides a position of strength while exploring potential strategic M&A opportunities to continue our expansion.”
Trulieve’s stock price is currently trading at US$21.72 per share, a 5% decrease since the earnings announcement and a 159% increase in the past year.
Trulieve FY/2020 Guidance
- Revenue of between US$465 million to US$485 million, raised from its previous guidance of between US$380 million and US$400 million.
- Adjusted EBITDA of between US$205 million and US$225 million, raised from its previous guidance of between US$140 million and US$160 million.
CHART 1: S&P 500 (black) vs APHA (purple), CRON (blue), CURLF (green), GTBIF (red), TCNFF (yellow), and WEED (orange) – Yearly Stock Performance
Other recent eResearch articles related to the cannabis industry:
- July 11: Quarterly Cannabis Update – Impairments, Financings, Partnerships, M&A, and Other Deals
- July 9: Cannabis Central – Most Pot Stocks are Down YTD but these 6 are “Winners”
- June 27: Cannabis Central – A Conservative Approach to Investing in the Cannabis Industry
- June 18: Cannabis Beverage Market Update – New Products, M&A Deals, and Financings
