Within the next seven days, the three biggest cannabis companies by market cap will step into the earnings confessional.
Canopy Growth Corporation (NYSE: CGC), Aurora Cannabis Inc. (NYSE: ACB) and Tilray Inc. (Nasdaq: TLRY) have all rebounded sharply in 2019 after the pot bubble popped last year. Now, investors will get a chance to see just how well these kings of cannabis are handling the new-found legalization in Canada and the hemp liberation in the U.S.
Is it safe to snap up a few shares ahead of earnings, or will there be better deals waiting after the Street digests this week’s financial results? Let’s take a closer look:
1. Canopy Growth Corporation (CGC) — Market Cap: $15.58 Billion
This Tuesday, Feb. 14, Canopy Growth is set to report its third-quarter results. Canopy made a name for itself and helped over-inflate the pot bubble last year when Constellation Brands dropped $4 billion on the company to increase its holdings. Constellation’s plan is to develop cannabis-based beverages to expand outside of its current alcohol lineup.
The notoriety earned Canopy Growth a considerable following, even as Constellation took a hit for supposedly overpaying. Still, analysts remain very bullish on Canopy Growth’s prospects, dolling out six “buy” ratings and one “hold.”
Canopy deserves this bullish stance, however, as it is the largest producer of cannabis in Canada, pumping out some 500,000 kilos annually. The company is primed to take full advantage of new Canadian laws.
As for earnings, the consensus is projecting a 15-cent-per-share loss for Canopy Growth, with revenue projected to hit all-time highs on a growth rate of more than 200 percent. This disparity is due to high operating costs to ramp up production for legal cannabis in Canada, which will drive revenue to levels Canopy has never seen.
Oddly, however, EarningsWhispers puts the whisper number at a loss of 22 cents per share. If Canopy can control operating costs and beat this figure, expect a surge for CGC shares in a Valentines’ Day rally.
2. Aurora Cannabis Inc. (ACB) — Market Cap: $7.49 Billion
Aurora cannabis will report its second-quarter results this morning. The company comes in at a close second to Canopy in terms of cannabis production, coming in just shy in terms of maximum production capacity. However, Aurora’s real money maker right now lies with hemp and CBD oil and products. The 2019 Farm Bill has played right into Aurora’s hands on this front, and the company has hit the ground running.
There’s slightly less mystery surrounding Aurora’s trip onto the earnings stage. Last month, the company announced preliminary second-quarter guidance, with revenue expected between $50 and $55 million Canadian. That’s an impressive 327 percent year-over-year spike! What’s more, Aurora said that this growth has stemmed from not only Canadian demand, but “growing international markets” as well.
While the cat is already pretty much out of the bag for Aurora’s earnings, holding to these figures should see the shares rise following the report. Furthermore, out of the three pot stocks listed today, Aurora and it’s international connections (including a deal to distribute via Shopify) represent the largest growth opportunity in the Canadian pot sector going forward.
3. Tilray Inc. (TLRY) — Market Cap: $7.382 Billion
Tilray is probably the most hyped Canadian pot company in the top three. TLRY stock shot from a value of just $15 per share to a high of $300 per share last year. The shares have since settled down into a trading range near $80, but volatility continues to plague TLRY.
And more volatility is on the way. Tilray is set to release it’s fourth-quarter and full-year results after the close on Feb. 19. Analysts are projecting a loss of 17 cents per share on revenue of $17.32 million — that’s a far cry from both Aurora and Canopy’s figures.
The hype is not completely without merit. Tilray has signed deals with both drug maker Novartis and alcoholic beverage giant Anheuser-Busch InBev. The problem, however, is that with 850,000 square feet of growing capacity, there are much lower valued companies with greater production capacity.
In short, Tilray stock appears to still be heavily overvalued relative to the rest of the market. TLRY is one pot stock you may want to hold off on snapping up until after earnings. By that time, we should have a better view of how the company plans to ramp up and justify its current valuation.
Full disclosure: As of this writing, Thomas Lancaster held U.S.-listed shares of both Canopy Growth and Aurora Cannabis.