The latest batch of earnings is significant because the fourth quarter of 2018 was the first full quarter in which recreational marijuana was legal in Canada. So far, Canopy Growth Company’s has been the most positively received, with the earnings call happening just this morning, and the CGC stock price up over +7% as of 9:35AM. Earnings for all of these three companies in particular is important because first of all, together, the three comprise over 22% of the Marijuana Alternative Harvest ETF (MJ), which speaks to their relatively large market value. Secondly, they are among the three largest companies in the ETF which are heavily or entirely focused on the marijuana business.
Aurora (ACB) – Past Quarter Recreational
For Aurora, which reported earnings on February 11, recreational marijuana made up almost half (CA$21.6M) of its entire net revenue for the quarter (CA$54.2). Aurora’s earnings were expected to be a bit of a disappointment because of supply chain issues limiting recreational expansion in Canada after legalization, and the big number, net revenue, was CA$54.2, down from analysts’ original estimates, CA$60 to 75. This disappointment seems to have largely been baked into the stock price already, because Aurora gave advanced notice that revenue would be closer to CA$50, and analysts revised their projections. The stock price has been about flat in the few days since it reported. On the earnings call, leadership drove home that they’re optimistic for the future, primarily because of three things: increased production (in the first 5 weeks of 2019, they have produced more than they did full year a year ago), product innovation, and global expansion. They also mentioned the fact that they’re able to be a first mover in new markets and have a strong regulatory team a number of times. While Aurora says they are primarily a medicinal marijuana company, we’ll start with their news on the recreational front. When Canada legalized recreational, Aurora said for the company it was “all hands on deck” and they were happy with how it turned out despite supply chain issues. Aurora claimed 20% of Canadian market share for recreational products in the quarter, meaning 1 in 5 products sold were Aurora’s.
Aurora (ACB) – Past Quarter Medicinal
Aurora touted their success in penetrating the many medicinal markets around the world where recreational marijuana is not (yet) legal. For example, Aurora was successful in Luxembourg where no one else has been yet (they’re currently the sole supplier). Aurora has a presence in 22 countries and 5 continents.
To name a few: they have a letter of intent to acquire Mexico’s first federally-approved importer, they have an import permit for Poland, and the recently made first Czech Republic and UK deliveries. A hit on revenues in the past quarter came from a 10% tax on medicinal marijuana in Canada.
The excise tax hit Aurora because they absorbed it rather than pass it on to patients, and in total it cost them CA$3M. Aurora said they absorbed the tax because they don’t believe in it, for one, because no other medicine in Canada has this excise tax. The company is currently lobbying the government to remove this “unfair tax.” If Canada does get rid of it, of course, net revenue would increase.
Aurora – International Expansion & Future Plans
Aurora has done a lot of M&A recently, buying smaller companies to expand their international reach. In particular, their purchase of ICC in Uruguay interested me. Aurora said the company’s benefit is their raw hemp production capability, which they plan to feed into their international distribution channel. Indeed, while Aurora reported that ICC has 70% market share in the country, I know anecdotally from being there that they don’t sell recreational to people who aren’t Uruguayan (you can only buy seeds).
Therefore, 70% is perhaps close to meaningless because there’s little to no hope of a tourist market, and the country is tiny. Medicinally, Aurora has 40 clinical stage products, and 7 products in the pre-clinical stage.
Canopy Growth Company (CGC)
Earnings were released last night and the latest earnings call was this morning, February 15th, 2019. The big CGC earnings news that’s being so positively received by the market:
Big CGC Earnings News
- Their CFO is retiring
- CGC is planning a dog/animal care market in the US, already testing on dogs
- The state they’re most positive on in the USA is NY and its CBD market & cosmetic market
- CGC is the largest pot company by market value
- Net revenue was C$83M. This is a 282% increase from last year.
- Of net revenue, 59M or 70% was recreational, 16.5M was medical, and remainder was clinical products, etc. CGC also absorbed the excise tax for its medicinal patients, which hit net revenue by over C$10M
- 33% was soft gels
- The first legally sold gram in Canada was CGC’s. Sold cannabis “coast to coast”
- Will have a building ready to make beverages in Canada in May. They’re very excited about that market because of its higher margin. CGC views their beverages as “first of a kind” and think they’ll set an example to the world
- In the most recent quarter ending December 31, 2018, CGC sold more than Aurora, 30% of the recreational market in Canada, which said it sold 20% of recreational weed in Canada. Specifically, Aurora sold 7K kilos of marijuana; Canopy sold 10K kilos.
- R&D cost was C$5.3M in comparison to C$300K last year. One R&D example they gave was how to grow cannabis under different climate conditions
- CGC issued a convertible bond and in the quarter no investors opted to convert the shares to equity yet
- They have vape and pre-rolled joined machines producing in Canada, looking into how to replicate them in new Canadian markets because those are higher margin products
- They now call medical marijuana “Cannabinoid Therapy”, and they think it’s higher margin depending on regulations
- Globally, CGC has a presence in 4 LatAm countries, and 16 countries in total, including Germany, which is a big market for them
Tilray’s latest earnings report is expected to be soon, although the company has not confirmed a date. We’ve seen estimates for February 19, 22, and 27th. We will update this post after the release. Remember you can invest in Marijuana on iBillionaire via the Marijuana Strategy, which invests in the MJ ETF. Use this link below to buy Marijuana Stocks: