Forget Mixed Pot Earnings; Bet on ETF on Growth Prospects

Marijuana stocks and related ETFs, like the pure-play marijuana ETF ETFMG Alternative Harvest ETF MJ, have been soaring this year courtesy of Canada’s legalization of recreational marijuana in October as well as legalization for recreational sales in some U.S. states. In fact, MJ is up 42.9% this year (as of Feb 15, 2019) (read: 4 Reasons Why Marijuana Stocks & ETFs Could Be on a High in 2019).

No wonder, such hype over marijuana stocks leads us to have a special focus on quarterly earnings of the companies. Below we highlight some and discuss what lies ahead for the industry.

Canopy Growth Falls Short of Estimates

Canopy Growth Corporation CGC came up with a quarterly loss of 67 cents per share versus the Zacks Consensus Estimate of a loss of 15 cents. This compares to loss of 11 cents per share a year ago. These figures are adjusted for non-recurring items.

Canopy Growth posted revenues of $62.85 million for the quarter ended December 2018, missing the Zacks Consensus Estimate by 4.91%. This compares to year-ago revenues of $17.09 million, up about 268% year over year. The company has not been able to beat consensus earnings and revenue estimates over the last four quarters.

The company had 22 million Canadian dollars' worth of finished goods during the quarter, down from 56 million Canadian dollar in the prior quarter. Still, CGC gained 3.1% post earnings in the key trading session on Feb 15.

Aurora Cannabis’ Revenues Beats Estimates

Aurora Cannabis Inc. ACB reported revenues that beat analyst expectations. The cannabis producer generated $54.2 million in revenues in its fiscal second quarter, up 363% year over year. Analysts polled by Bloomberg, on average, expected the company to report $52.6 million in revenues.

The company sold $21.6 million of legal recreational cannabis in the quarter, which was 20% of all consumer sales across the country. It grossed $26 million from the sale of medical cannabis and has registered 73,600 patients, up 9% from a year earlier, per an article published on Bloomberg. The company expects its global medical cannabis business "to accelerate significantly over the next quarters and years."

What to Expect from Tilary?

This company is yet to report earnings, but could beat both Aurora and Canopy on the international front. In September 2018, Tilray became the first Canadian marijuana producer to export both cannabis oil and cannabis flower products to Germany, per an article published on etfdailynews.com.

Bright International Outlook

The outlook is promising. Like many analysts, we too believe that international opportunities are pretty big for marijuana producers but accounts for a small percentage of current revenues. So, there is enough room for future growth.

Both Aurora and Canopy expect higher margins later this year and see considerable scope to launch new products later in 2019 in Canada, including cannabis edibles and beverages, per etfdailynews.com. Investors should note that Turkey has planned to make cannabis growth and output a key part of its economic plan.

Germany has accepted bids for supply contracts from 79 potential cannabis growers as the country intends to build its own medicinal marijuana industry and cut reliance on imports from Canada and the Netherlands.

On the other hand, medical marijuana is gaining popularity in Australia. South Korea’s medical marijuana law is expected to go into effect on Mar 12, after which the county can import some THC- and CBD-based medication. The United Kingdom got its first-ever import of “bulk” medical cannabis in mid-February.

So, though there are hurdles like a higher cost structure for companies and shrinking stock levels of weed at Canopy Growth, the space holds potential for the long term.

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