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May 11, 2019, 8:21 a.m. EDT

Cannabis companies failed their first big test, now they have a second chance

March-quarter earnings are expected to show how well companies are coping in Canada’s newly legal market

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By Max A. Cherney


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Tilray, Aurora Cannabis and several other cannabis companies are set to report next week.

After the first nearly full quarter of recreational cannabis sales, the world’s largest pot producers had a shot to prove they belonged among blue-chip stocks.

They mostly failed.

For a sector crawling toward legitimacy, the first crop of recreational cannabis earnings did little to dispel longstanding clichés about those involved in the industry. Earnings were late, or in some cases not filed at all , they contained errors that required restatements, and many had massive paper losses that were poorly explained to investors, among other issues.

Here are several examples:

• Canopy Growth Corp. /zigman2/quotes/200603886/composite CGC -3.76%  , /zigman2/quotes/202205609/delayed CA:WEED -4.50%  the world’s largest cannabis company by market capitalization, decided to release its earnings at roughly 8:30 p.m. Eastern time — 30 minutes after the extended session closes in the U.S. According to a company spokeswoman, Canopy chose to file the documents at such a late hour to “minimize the amount of time and news coverage,” and limit trading activity without the context of the earnings call between the financial release and the conference call the next morning at 8:30 a.m. Eastern Time. The company told MarketWatch Friday beyond those factors, Canopy had changed auditors to KPMG from Deloitte, which contributed to the delay as well. Canopy was forced to correct the earnings documents because they contained an error — one figure was wrong in the management discussion and analysis — and did so at roughly 9:45 p.m. Eastern time nearly a week later.

• Acreage Holdings Inc. /zigman2/quotes/205165963/delayed ACRGF +3.75% , the company Canopy Growth purchased the right to buy pending U.S. marijuana legalization, issued a press release containing “highlights from statements of financial position,” but did not release the dozens of pages of documents outlining underlying assumptions or details for the figures. It took several weeks for Acreage to release the full financial tables and management discussion and analysis. Acreage, however, is in good company: Aurora Cannabis Inc. /zigman2/quotes/210559470/composite ACB +13.81% /zigman2/quotes/203734337/delayed CA:ACB +15.87%  used the same method to release its financial statements for the June quarter, though it only waited until the next morning to issue the full earnings report.

• Tilray Inc. /zigman2/quotes/209129655/composite TLRY +15.19%  made investors lives more complicated by failing to disclose the exact amount of excise taxes paid, but said on its conference call that it was possible to figure out a rough figure, based on the information it had provided. That was in stark contrast to rival pot companies, the vast majority of which gave a gross revenue figure and net revenue excluding excise taxes in their financial statements. Big alcohol producers such as Molson Coors Brewing Co. /zigman2/quotes/205165133/composite TAP -1.45%  follow the same method too.

What to expect next week

March-quarter marijuana earnings kicked off in earnest this week, with reports from Altria Group Inc. /zigman2/quotes/208895754/composite MO 0.00%  -backed Cronos Group Inc. /zigman2/quotes/206842762/composite CRON -0.47%  , /zigman2/quotes/202715342/delayed CA:CRON -1.12%  GW Pharmaceuticals /zigman2/quotes/209686240/composite GWPH -0.94% which makes a drug from cannabidiol, or CBD, called Epidiolex that’s designed to treat epilepsy — and Canadian cannabis and alcohol retailer Alcanna Inc. /zigman2/quotes/206385050/delayed CA:CLIQ -3.02%   /zigman2/quotes/208091965/delayed LQSIF +1.69%  

So far, none of those companies have caused headaches for investors. But next week a much larger batch of cannabis companies are expected to report results, including major enterprises such as Aurora and Tilray.

Aurora earnings are set to hit late Tuesday, though they usually don’t publish the documents for a couple of hours after the closing bell. The company will host its conference call before the opening bell Wednesday. According to GMP Securities analyst Martin Landry, investors should expect third-quarter sales of C$74 million ($55 million), limited in large part by provincial caps on retail stores around the country. Aurora also raised $350 million via convertible debt in January, has brought famed hedge-fund manager Nelson Peltz in as an adviser and told investors it plans to expand into the U.S.

For Tilray, there is one open question: how much pot can the company grow itself? It’s set to release earnings Tuesday after the close, and hold its conference call with investors at 5:00 p.m. Eastern time. Until now, the licensed producer has been buying large quantities of third-party product, driving down margins. Until Wednesday, according to Jefferies analyst Owen Bennett, Tilray had not invested in Canadian cultivation as heavily as its peers — but the company said that it’s spending tens of millions to increase its cultivation footprint at three sites across Canada.

Here are some other names set to report earnings next week:

• Supreme Cannabis Co. Inc. /zigman2/quotes/209645734/delayed CA:FIRE +10.53%   /zigman2/quotes/203819708/delayed SPRWF +12.24%  is set to report Monday after the close.

• CannTrust Holdings Inc. /zigman2/quotes/206800806/delayed CA:TRST -5.77%   /zigman2/quotes/201332942/composite CTST -5.14%  is expected Tuesday before market open.

• Green Organic Dutchman Holdings Ltd. /zigman2/quotes/206870535/delayed CA:TGOD -13.04% /zigman2/quotes/204266798/delayed TGODF -12.12%  is set to release its results Tuesday after the open and hold a conference call Wednesday before the opening bell.

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Max A. Cherney is a MarketWatch reporter based in San Francisco. Follow him on Twitter @chernandburn.

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