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Investor Alert

Oct. 2, 2019, 7:22 a.m. EDT

Cannabis investors can brace for another disappointing set of earnings from Canadian LPs, says MKM

Cannabis investors can brace for another disappointing set of quarterly results from Canadian licensed players, with expectations for profitability still unrealistically cheery, MKM Partners said Wednesday. Analyst Bill Kirk cited Aurora Cannabis's (NYS:ACB) (TSE:CA:ACB) warning of slower buying from provinces in July and August, and little sign that new retail locations are opening in Ontario in October as two factors suggesting weak results. "We believe the next reported quarter will not show meaningful net sales acceleration," Kirk wrote in a note to clients. "Increased costs, without the hoped for sequential revenue growth, results in profitability that is likely to disappoint." Kirk is expecting market leader, Canopy Growth Corp. (NYS:CGC) (TSE:CA:WEED) to become profitable on an EBITDA basis (earnings before interest, taxes, depreciation and amortization) by the first quarter of 2020, compared with the consensus forecast for EBITDA profitability by the first quarter of 2021. Kirk expects Aurora to reach that goal by the first quarter of 2021, compared with the consensus for the third quarter of 2020. For Tilray Inc. (NAS:TLRY) , his forecast is the first quarter of 2022, a year after consensus. For Cronos (NAS:CRON) (TSE:CA:CRON) , it's the first quarter of 2023, compared with consensus for fourth quarter 2021, and for Hexo Corp. (NYS:HEXO) , his date is second quarter 2020, matching the consensus. "We think a looming weak reporting season will gradually push consensus expectations toward ours," the analyst wrote. U.S.-listed Canopy shares were down 0.6% premarket, while Aurora was down 0.2%. Cronos was flat, Tilray was up 0.5% and Hexo was down 1.6%. The ETFMG Alternative Harvest ETF was down 1.2% and has fallen about 19% in 2019, while the S&P 500 (S&P:SPX) has gained 17%.

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Cannabis stocks tumble as analyst tells investors to brace for more weak earnings

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