Welcome to "Into the Weed," The Fly's recurring series focused on the stories impacting cannabis stocks. Shares of Canopy Growth (CGC) and Tilray (TLRY) are lower in late morning trading following their first earnings reports after Canada legalized recreational cannabis.
CANOPY GROWTH: Canopy Growth this morning reported a loss per share for its second quarter of (C$1.52), widening from (C1c) in the year-ago quarter. Revenue in the fiscal second quarter was C$23.33M, above the C$17.57M it reported a year ago, but a sequential decline from C$25.9M. The quarter included C$115.7M in share compensation expenses and fair value charges on financial assets and accounted for C52c of the loss per share. Sales of oils, including the company's Softgel capsules, accounted for 34% and 18%, in the respective second quarters of fiscal 2019 and 2018, the company said. During the quarter, the company received a C$5B investment from Constellation Brands (STZ, STZ.B), but since the deal closed on November 1, subsequent to the quarter, the investment did not appear in Canopy's Q2 financial statements.On its earnings conference call, Bruce Linton, the company's chairman and co-CEO cited "a couple of hiccups" with its German business and issues with its medical marijuana patients in Canada for the sequential decline in sales. "I think most were expecting provinces taking product in a material way and most provinces were not," he said, adding that "I don’t think you’re wrong about what the year could look like."
TILRAY: Tilray reported an adjusted loss per share for its third quarter of (8c), while revenue for the quarter was $10M, in line with analysts' estimates of $10.12M, and up 85.8% compared to the same quarter last year. Total kilogram equivalents sold increased over two-fold to 1,613 kilograms from 684 kilograms in the prior year, the company said. In an interview with CNBC's Closing Bell, CEO Brendan Kennedy said the increase in revenue this quarter is from medical use, not adult use. Kennedy said he expects to see Canadian adult use revenue next quarter following Canada's legalization of cannabis in October. "All of that revenue for this quarter is medical and we look forward to next quarter, when we'll start to see some Canadian adult-use revenue in that earnings report," Kennedy said. He added that "the biggest challenge is that there's just so much demand, which is interesting to see." In a post-earnings research note, Benchmark analyst Mike Hickey said recreational use experienced a slow start, primarily due to the timing of licenses, distribution and retail infrastructure, as expected. He added that there "appears to be exceedingly strong demand" from Canadians.
LEFT 'BEARISH' ON CANADIAN CANNABIS PRODUCERS: Citron Research's Andrew Left is bearish on Canadian cannabis producers like Tilray as he expects them to be overtaken by U.S. competitors once recreational marijuana is legalized in the U.S., Reuters reported earlier this week, citing comments he made at the Reuters Global Investment Outlook Summit. "When U.S. LPs go public in the next few years it will make these Canadian companies laughable. The cannabis trade is a perfect trade because the cannabis trade is a non-branded, no-moat mega-trend," said Left, who is launching a new hedge fund which will in part focus on the cannabis industry."
PRICE ACTION: Shares of Canopy Growth slumped over 10% to $34.61, while Tilray is down nearly 9.5% to $101.10 in late morning trading.
OTHER CANNABIS STOCKS: Other publicly traded companies in the space include Aurora Cannabis (ACB), CV Sciences (CVSI), CannTrust Holdings (CNTTF), Cronos Group (CRON), General Cannabis (CANN) and India Globalization Capital (IGC).
Canopy Growth
-4 (-10.40%)
Tilray
-10.57 (-9.50%)
Aurora Cannabis
-0.47 (-7.10%)
CV Sciences
+ (+0.00%)
CNTTF
+
Cronos Group
-0.41 (-4.95%)
Trees Corporation
+ (+0.00%)
ICG Communications Inc
+ (+0.00%)
Constellation Brands
-1.86 (-0.93%)
Constellation Brands; also tag STZ
+ (+0.00%)