Cannabis Winners and Losers for Q3 2018

Matthew Carr By Matthew Carr
Emerging Trends Strategist

Beyond the Bong
This is individual research and does not constitute investment advice.

Investors were focused on two things last week: Federal Reserve Chairman Jerome Powell’s interest rate views and U.S.-China trade tensions.

The result was another series of roller-coaster swings.

Pot stocks suffered their own week of ebbs and flows…

But the focus wasn’t on the Fed or tariffs on U.S. cars. It was on earnings.

Remember, there are roughly 200 publicly traded cannabis companies.

Not all of them reported earnings last week… but many did.

So I’m going to quickly break down last week’s winners and losers…

GW Pharmaceuticals (Nasdaq: GWPH) was the biggest headline-grabbing loser.

The biotech company reported that losses increased from $0.18 per share a year ago to $0.23.

If that wasn’t bad enough, revenue fell 43.5% from $4.25 million to $2.4 million.

GW was the first company to receive FDA approval for the cannabinoid-based treatment Epidiolex. That’s a major milestone for the industry.

But it’s been a disappointing year for biotech. And investors are feeling the losses.

Meanwhile, one of the winners last week was hemp-based CBD producer Charlotte’s Web (OTC: CWBHF).

Revenue surged 57% to $17.7 million. Even better, gross profit jumped 54% to $13.8 million. That represents 78% of revenue.

The company enjoyed a 42% spike in human nutritional sales. But as we’ve seen in recent months, everyone is eyeing the potential for the pet market. Here, Charlotte’s Web’s animal nutrition sales skyrocketed 153%.

Fellow hemp-based CBD producer Isodiol International (OTC: ISOLF) reported mixed results.

Revenue topped $8 million with gross profit of $4.3 million. And with anticipation of the farm bill being finalized, the company scaled back raw bulk CBD ingredient sales.

This is a strategic move Isodiol believes is necessary for long-term growth. Because if the farm bill passes, we’re expecting increased demand for a variety of CBD products. So the company is building up inventory in preparation for that surge.

Investors weren’t thrilled about the short-term setback.

But those results were just the tip of the iceberg…

Pot Stock Profits (and Losses) of Note

  • MedMen Enterprises (OTC: MMNFF): Revenue skyrocketed 1,094% to $21.5 million, but losses widened to $12.5 million 👎
  • Green Thumb Industries (OTC: GBTIF): Revenue surged 344% to $17.4 million 👍
  • FSD Pharma (OTC: FSDDF): Reported third quarter EPS profit of $0.03 👍
  • Plus Products (CSE: PLUS): Revenue grew 617% to $2.56 million 👍
  • VIVO Cannabis (OTC: VVCIF): Reported record revenue of $2.3 million 👍
  • Acreage Holdings (OTC: ACRZF): Third quarter pro forma revenue went up 104% to $5.5 million, but losses widened 👎
  • 1933 Industries (OTC: TGIFF): Full-year revenue increased 1,128% to $12.65 million 👍
  • MJardin (OTC: MJARF): Sales increased 65% to $7.1 million, but net income slipped to a loss 👎
  • Origin House (OTC: ORHOF): Third quarter revenue jumped 790% to $6.6 million, but losses more than doubled 👎
  • iAnthus Capital Holdings (OTC: ITHUF): Revenue increased 101% to $1.074 million, but losses widened 👎
  • KushCo (OTC: KSHB): Revenue jumped 177% to $52.1 million 👍
  • Canopy Rivers (OTC: CNPOF): Second quarter EPS increased to $0.03 from a loss of $0.04 a year ago 👍

Here’s the deal though…

Cannabis companies have been hammered over the past month. So even those companies that reported strong earnings last week are still trading well below their 52-week highs…

Another Reason to Feel Jolly

Right now, investors are anxiously awaiting Santa Claus’ arrival in the form of a late-December rally.

The markets are tuned in to holiday sales. It’s hard not to be with Black Friday, Small Business Saturday, Cyber Monday, Super Saturday…

But to say this time of year is important for retailers is an understatement. In fact, for some, as much as half their annual sales depend on the holiday season.

And cannabis companies celebrate Christmas and the winter holidays too.

Last week, Canadian e-commerce platform operator Namaste Technologies (OTC: NXTTF) announced record Black Friday and Cyber Monday sales.

During its five-day sales event, the company brought in roughly CA$1.25 million.

It’s important to remember that this is the first holiday season with legal adult-use sales in Canada. So there are must-watch trends underway.

Namaste said almost all of its Black Friday sales were for vaporizers and smoking accessories.

And looking ahead, the company believes the holiday cheer will spill over into 2019. Not only is there the Canadian adult-use market, but medical sales will also go online in the U.K. and other overseas markets.

It’s worth keeping in mind that the next earnings reports from the cannabis sector will include a full quarter of legal Canada sales AND holiday sales. That should be a gift to investors.

Pot E-Commerce Picks to Know for the Holidays

  • Shopify (Nasdaq: SHOP)
  • Indiva (OTC: NDVAF)
  • SinglePoint (OTC: SING)

In With the New: Company Spotlight

This week’s company has been making headlines recently.

The reality is the cannabis sector is evolving. And so are the companies.

This is why Emerald Health Sciences Executive Chairman Dr. Avtar Dhillon was named president of its publicly traded holding Emerald Health Therapeutics (OTC: EMHTF).

Emerald Health is prepping for rapid growth and expansion. And the change was made to streamline the leadership structure.

In the last edition of Beyond the Bong, I discussed how Emerald Health Naturals had just received conditional approval to trade on the TSX Venture Exchange. Plus, Dr. Dhillon has been a guest on CannaBiz Now!

Last week, Emerald Health was also one of the many pot stocks reporting earnings. Third quarter revenue grew 51.9% to $321,070. But as we’ve seen from other companies in the sector, its loss widened year over year, as well as sequentially.

The company supplied adult-use products to British Columbia and Newfoundland and Labrador in October and November. Plus, it was selected in September as a supplier for Ontario.

Its marquee facility, Pure Sunfarms, is expanding production to 550,000 square feet. And it’s projected to produce 75,000 kilograms per year.

These are positives. And it filed 17 patents for its Defined Dose cannabis products.

However, Emerald Health’s shares have struggled recently. They fell more than 6% on earnings and – despite an initial bounce on the leadership change announcement – tumbled a day later.

For much of the year, Emerald Health’s shares have topped out at $4, then fallen to around $2. They’ve been bouncing in this range, unable to break back to the $6 and $7 highs enjoyed in early 2018.

That makes them more attractive near $2 than $4.

There’s tremendous potential in Emerald Health. The company has new leadership, new patents, a new publicly traded arm and a diversified structure. But shares are facing resistance to the upside.

That’s all for this week. Be sure to share in the comments section if you’d like to see a particular company highlighted.

Until next time…

Good investing,

Matthew