North American Marijuana Markets Suffer From Growing Pains
Every burgeoning industry suffers from growing pains. And cannabis is growing faster than any other.
There’s also no other industry changing as rapidly.
This is a double-edged sword. That means there’s immense upside.
But there will also be plenty of stumbles along the way as the industry learns how to keep its legs underneath it.
And those wobbly legs were on display once again recently.
California’s Supply Crunch
On November 1, California’s Bureau of Cannabis Control (BCC) suspended the licenses of 394 businesses.
That represents about 5% of the state’s legal cannabis supply chain. It includes retailers, delivery services and distributors, among others.
So what happened?
Well, California’s marijuana industry is transitioning from temporary to provisional licenses. The temporary licenses expired over the summer. And provisional licenses are one step closer to permanent permits.
Under Proposition 64, cannabis companies have to participate in the state’s track-and-trace system provided by Metrc. One of the qualifications for a provisional license is enrolling in Metrc, as well as completing the system training and beginning to upload data.
The suspensions were for stragglers that failed to enroll.
The BCC provided plenty of time and warning to enroll. The agency even sent reminders in October. And now companies that haven’t complied have to halt sales. But they can resume operations once they enroll with Metrc.
The BCC sees this as part of the many growing pains.
But it’s not the only ache at the moment…
Pink Slips for the Holidays
It’s been a rocky road for pot stocks in 2019.
The highs were good. But the lows have stung.
And now we’re starting to see some belt-tightening as we prepare to close out the year.
In recent weeks, we’ve covered that CannTrust Holdings (NYSE: CTST) laid off 180 employees.
Fellow struggling Canadian licensed producer Hexo Corp. (NYSE: HEXO) also announced layoffs.
No surprise there. Both have been rocked by either scandal or missed expectations in recent months.
I expect this pace will pick up in the months ahead. And we might even hear some color this week because a lot of cannabis earnings are on deck.
Though one cannabis figure keeps finding more jobs…
The Magic Touch
Sometimes, being the poster child CEO for the industry has its perks.
Last week, former Canopy Growth Corp. (NYSE: CGC) CEO Bruce Linton got a new job as executive chairman of U.S. multistate operator Vireo Health (OTC: VREOF).
As a result, shares of Vireo Health skyrocketed as much as 68%!
This marks the first major role Linton will play with a cannabis company since being pushed out of Canopy a few months ago.
But his old stomping grounds is our No. 1 pot stock to watch this week!
The High Five
Earnings season for cannabis companies is about to plow ahead full steam. Roughly two dozen pot stocks will make announcements this week.
So that’s what we’re paying attention to.
Below are our High Five, where – each Monday – I cover the five pot stocks I believe will make major moves – up or down – in the week ahead.
1) Canopy Growth Corp. (NYSE: CGC) continues to shore up its stable of A-listers. Last week, it announced it has partnered with Canadian rapper Drake to launch a cannabis wellness company called More Life Growth Company.
More importantly though, Canopy will report second quarter results on Thursday before the opening bell.
Expectations are for $81 million in revenue with a loss of $0.29 per share.
2) Tilray (Nasdaq: TLRY) – like Canopy – is another of Canada’s “Big 7” licensed producers. It will report third quarter results tomorrow after the closing bell.
Analysts are expecting a 393% increase in revenue to $49.59 million with a $0.30 loss per share.
3) Cronos Group (Nasdaq: CRON) will also report earnings tomorrow, though before the market opens.
Wall Street is looking for a 291% increase in revenue to $8.2 million. And we want to see better than a $0.02 loss per share.
4) Aurora Cannabis (NYSE: ACB) will report first quarter results on Thursday after the closing bell.
If the Canadian licensed producer can post at least $71 million in revenue and a better than $0.03 loss per share, we could see a pop.
5) Charlotte’s Web Holdings (OTC: CWBHF) will release third quarter results on Wednesday before the market opens.
For the American hemp-derived CBD producer, expectations are for an 84% increase in revenue to $32.65 million. And we’re looking for earnings per share of $0.05. That would be a more than 100% increase over last year.
As always, we like to compare the performance of our High Five with the benchmark Horizons Marijuana Life Sciences Index ETF (OTC: HMLSF).
The biggest laggard over the past month has been Charlotte’s Web. Meanwhile, Cronos and Tilray have been leading the pack to the upside.
But I believe this will be an important earnings season – and an important week – for cannabis, and especially for Canadian producers.
We’re looking for any kind of commentary on Cannabis 2.0 legalization. And we’re looking for any signs that a turnaround is near.
If any of the news this week is positive, we could see shares go on a tear.
Here’s to high returns,
About Matthew Carr
Matthew’s expertise ranges from classic industries such as oil and mining to cutting-edge markets like small cap tech, cannabis, 3D printing and cloud computing. With almost two decades of financial experience under his belt, Matthew’s knack for finding market trends never fails to surprise us, which is why we keep a close eye on his free e-letter, Profit Trends.