An employee organizes PharmaCannis products at a Curaleaf store in New York in 2018.
Jeenah Moon/Bloomberg
Cannabis earnings could be a muted affair this season, as the industry grapples with slowing sales and rising costs across the board.
In their fourth-quarter earnings calls in March, most major cannabis companies warned that they were expecting a market decline in the first quarter. That could weigh heavily on the industry, which is still fledgling as countries look to adopt legislation to legalize cannabis.
“Our long-term category outlook remains robust, but the near-term challenges are significant: decelerating category growth, oversupply, outsized pressure on lower income consumer spending, rising input cost inflation, and increased capital costs,” wrote Stifel analyst W. Andrew Carter in a research note.
Moreover, as competition increases in the sector, cannabis companies are facing reduced pricing power to offset rising costs, Carter added.
Green Thumb Industries (ticker: GTBIF) is kicking off the season, reporting after the close on Wednesday. Analysts are expecting the company to post earnings of eight cents a share on $306 million in revenue, according to FactSet.
Cantor Fitzgerald analyst Pablo Zuanic believes investors will be focused on the start of recreational sales in New Jersey, where Green Thumb seems “well placed” with two out of 12 recreational stores open and above-average assortment. The analyst maintained an Overweight rating ahead of earnings, but revised his price target down to $39 from $41 in a Monday research note.
Curaleaf Holdings ( CURLF) is reporting May 9. The company is expected to report a loss of four cents a share on $409 million in sales, according to FactSet. Curaleaf is one of Zuanic’s top picks in the sector, and maintained an Overweight rating on the stock ahead of earnings.
“We believe Curaleaf should be a long-term core holding for those seeking U.S. cannabis exposure,” he wrote in a note at the end of April.
Trulieve Cannabis Corp. ( TCNNF), based in Florida, reports earnings May 12. The company is expected to report earnings per share of six cents and $395 million in sales, according to FactSet.
Stifel’s Carter reduced his outlook for the U.S. state-licensed cannabis industry, but remained constructive in the long run, saying the growth profiles remain undervalued. He estimates 2022 licensed cannabis sales will grow 13% year over year to $27.2 billion, down from his previous $28.6 billion estimate. The Canadian market, in contrast, looks more challenging, he added.
“It’s saturated with competition on both ends of the supply chain,” he said in a call with Barron’s.
Canadian-based Cronos Group ( CRON) reports earnings May 10. Analysts are predicting Cronos will post $32.8 million in sales, with a loss of 12 cents per share. Only 23% of the analysts covering the stock polled by FactSet rated it a Buy, while 62% rated it a Hold.
“While we believe Cronos’ results will stand out relative to peers given absolute growth [year-over-year] and driven by what we view as a sustainable approach, we do not believe the sequential pressure on 1Q22 consumption is fully appreciated, suggesting headline risk around earnings,” Carter wrote. He had a Hold rating on the stock and a $4 price target.
Canopy Growth Corp. ( CGC) and Aurora Cannabis (ACB) are both expected to report by the end of May, but have yet to announce earnings. Canopy Growth has been hit hard over the last few months, with 40% of analysts rating it a Sell, 50% rating it a Hold, and 10% rating it a Buy. Aurora Cannabis had 61.5% Hold ratings, 30.8% Sells, and 7.7% Buy.
Canopy Growth recently announced a sweeping cost reduction strategy to move toward profitability, but analysts are skeptical that the company will be able to keep up with its cash needs. Carter is projecting a 42% year-over-year decline from the Canadian adult use business, amid increased price compression.
Shares of Canopy Growth were up 0.2% on Tuesday, while Green Thumb was dropping 4.9%, Curaleaf 1.9%, Trulieve 2.6%, and Cronos 1.8%. Aurora Cannabis was down 3.5%.
While Carter isn’t seeing many positive catalysts for the stock in the near term, the shares could react positively if there is any significant headway made in legislation legalizing cannabis, especially in the U.S.
While the House has passed legislation decriminalizing cannabis on a federal level, experts believe widespread legalization won’t take hold in the Senate. They are more optimistic, however, that a banking bill, called the Secure and Fair Enforcement Banking Act, or SAFE Act, passes later this year. The bill would prohibit federal banking regulators from penalizing banks that work with cannabis businesses legalized by states.
Write to Sabrina Escobar at sabrina.escobar@barrons.com
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