Cannabis stocks fell across the board Wednesday, led by the big Canadian licensed players, after an analyst said earnings expectations are unrealistic and told investors to brace for more bad news.
MKM Partners analyst Bill Kirk outlined his forecasts for when companies will report positive EBITDA, or earnings before interest, taxes, depreciation and amortization, a metric that is more of a measure of cash flow than actual profit.
Even on that basis, Kirk said he expects market leader Canopy Growth
will not be EBITDA positive until the first quarter of 2022, a full year later than the current consensus estimate. For Aurora Cannabis
the most widely held stock, Kirk expects positive EBITDA by the first quarter of 2021, compared with the current consensus of the third quarter 2020.
For Tilray Inc.
his forecast is the first quarter of 2022, a year later than the consensus. For Cronos
it’s the first quarter of 2023, compared with consensus for fourth quarter 2021, and for Hexo Corp.
his date is second quarter 2020, matching the consensus.
“With Aurora warning of slower buying from provinces in July and August (warning Sept. 12), and little indication new retail locations are opening in Ontario in October, we believe the next reported quarter will not show meaningful net sales acceleration,” Kirk wrote. “Increased costs, without the hoped for sequential revenue growth, results in profitability that is likely to disappoint.”
For Canadian LPs to improve profitability would require that pricing holds up, that new products due at year-end when derivatives come on line succeed and are margin-accretive, that export markets demand product grown in Canada and that brands start to resonate across regions.