Marijuana firms Hexo and Cronos Group both reported earnings on Monday—to far different effects.
Hexo, which released its January quarter results before the market opened Monday, shed more than a quarter of its value. Cronos, meanwhile, rose during Monday trading. It reported earnings after the market closed, and was only off slightly in after-market trading.
Earlier this month, Hexo pre-announced the January quarter’s gross revenue of 23.8 million Canadian dollars (US$16.8 million), adding the report would include write downs of at least C$265 million.
The company on Monday morning said such write-downs totalled C$266 million, related to intangibles, goodwill, and inventory. Its adjusted earnings before interest, taxes, depreciation, and amortization of negative C$10.3 million, beating consensus estimates at C$14.9 million.
Given the pre-announcement, Cantor Fitzgerald analyst Pablo Zuanic focused on a lack of improvement in cash burn, declining gross profit per gram, and worsening operating cash flow to sales ratios. The company ended the quarter with C$84.1 million in cash and short-term investments, and said it expects to need to raise more cash in order to meet obligations, commitments, and budgeted expenditures through Jan. 31, 2021.
“The risk of further dilution, lack of meaningful and sustainable sales improvement (i.e., OCF worsened, so we do not see the sales increase as of good quality), low gross profit per gram (at these price levels % gross margins lose relevance), and ongoing cash burn, make us maintain the Underweight,” he wrote, referring to his rating on the stock.
Cronos (CRON), meanwhile, announced a surprise profit, with earnings of 16 cents a share. Consensus estimates had called for a loss of 3 cents per share. Sales of $7.4 million were below estimates at $11.6 million.
Cash burn, as well as efforts to reduce capital expenditures, has been a major concern for most marijuana stocks. Cronos said it ended the year with about $1.2 billion. It’s been far more prudent than peers with its investment from tobacco giant Altria Group (MO). The company has enough cash to last it years, compared to the matter of months some may have left, unless they’re able to raise funds or cut spending.
Hexo stock (HEX) fell 27.5% to 79 cents on Monday. Aurora Cannabis stock (ACB) was down 13.8% to 89 cents, while Aphria stock (APHA) fell 6.7% to $3.08. Canopy Growth shares (CGC) held up better, at least by comparison, down 0.9% to $14.46. Cronos rose 0.8% Monday, though shares were down 0.3% in after-market trading.
Write to Connor Smith at connor.smith@barrons.com
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