4 of the largest pot companies will report earnings this week. And, although it’s too early to assess post-legalization numbers, a deeper dive into next week’s reports can give investors lots to trade on.
ACB, CRON, TLRY, WEED to report
Aurora Cannabis Inc. (TSX: ACB.TO) will report its Q4 earnings before the market opens Monday. Cronos Group Inc. (TSX: CRON.TO) will then report pre-market on Tuesday morning, followed by Tilray Inc. (NASDAQ: TLRY.O) after-market. Canopy Growth Corp. (NYSE: CGC.N) (TSX: WEED.TO) will then report on Wednesday morning.
Canada legalized recreational marijuana use last month on Oct. 17. After that, the country experienced supply shortages from east to west coast. It is still unclear, however, whether execution issues or short supply are behind the shortages.
Reports are a window to operations
While investor and analysts can’t assess post-legalization numbers directly yet, next weeks’ reports will be the first opportunity to get management’s take on the changing market. And they will give an indication of which companies are executing well. Investors and analyst alike will dissect executive commentary on post-legalization sales and the supply issues.
Specifically, savvy investors will look at the ‘selling, general and administrative expense’ (SG&A) line of the report. As GMP Securities’ Martin Landry told Canada’s national financial newspaper, the Financial Post, “that’s what’s going to tell us the break-even level needed to reach profitability.”
“Some licensed producers have very heavy SG&A structures at this point that will impair their profitability levels, and others are very lean.”
Investors will also want to know at what price each company is selling, and how much it costs to produce their pot. Those numbers can provide an estimate of how much money will be on hand after the next harvest.
Upcoming quarters could separate the wheat from the chaff
Until now, pot stock prices primarily moved in the same direction. That was true this week as the sector’s volatility continued. Share price gains from U.S. midterm elections and anti-marijuana Attorney General Jeff Sessions’ firing faded the toward the end of the week.
However, that tandem movement may begin to change next week as the results of legalization become apparent. Great operators will emerge, and the not-so-great will be ferreted out within a few quarters, most likely.
According to Landry, “I think the real picture for us will be the March quarter. Some of the kinks will have been worked out, and we’re going to get a better sense of results when there are less growing pains and smoother operations.”