Send me real-time posts from this site at my email
Motley Fool

Weekly Cannabis Stock News: Canopy Growth Saves the Marijuana Industry

Last week was a study in contrasts for publicly traded marijuana stocks. Two 300-pound gorillas of the industry, Aurora Cannabis (NYSE: ACB) and Canopy Growth (NYSE: CGC), both reported their latest quarterly results. Although the pair's bottom lines bettered analyst estimates, there was a world of difference between their performances.

In short, Aurora's quarter deepened pessimism about the prospects of marijuana companies generally. A day later, Canopy Growth's report brought the bulls roaring back into the sector, and peer weed stocks rose in sympathy. Here's more:

Image source: Getty Images.

Aurora Cannabis' Awful Q2

Let's face it, Aurora's Q2 results were grim. Quarter-over-quarter net sales cratered 26%, and while the market was expecting a deep net loss, it wasn't expected to be as bottom-touching as 1.3 billion Canadian dollars ($981 million).

Like that net revenue figure, a worryingly high number of both financial and operational metrics were down for Aurora during the quarter: production, selling prices, even ancillary revenue. The only significant items to rise were the ones no investor wants to see go higher, such as selling, general, and administration expenses (up 23% sequentially), and a whopping CA$762 million ($575 million) goodwill impairment charge.

One factor at least partly responsible for certain Aurora declines in Q2 was the suspension of its license to sell medical marijuana in Germany. This occurred not because of the callousness or favoritism of the German authorities, but rather because the company insisted on putting irradiated product on the market. This was a big no-no that wouldn't have happened had Aurora been following the basic practices and procedures of its business.

Somehow, Aurora's stock has actually traded up (by around 8%) since it released its earnings report on that train wreck of a quarter. I'm not sure why this is; maybe because results weren't as disastrous as some expected, or perhaps there's a crowd of bottom-feeder investors supporting the shares. Either way, I see almost nothing to be positive about here, and I think this is a clear case of a stock that's well worth avoiding.

Canopy Growth's Q3: Cruising to the top

In a refreshing contrast, one day after Aurora reported its latest quarter, Canopy Growth followed suit with its Q3 figures.

Those losing faith in marijuana stocks following Aurora's dim results quickly gained it back. Canopy Growth was true to its name in terms of net revenue, managing to improve it by over 60% on a quarter-over-quarter basis. The company is putting its head down and getting the job done, building out its retail presence and getting more product into the hands of customers.

Make no mistake about it: Canopy Growth is still not a runaway success story. Expenses, while coming down, are still considerable. Feeding into that, the bottom line remains well in the red (at a cool CA$124 million, or $94 million), even though this dropped by almost 70% quarter over quarter.

With this, Canopy Growth is the darling of marijuana stocks right now. It's going to continue with its buildout, which is encouraging because peddling more product is the best way to keep those growth numbers on the rise.

Canada's Cannabis 2.0 segment also provides a fine opportunity, particularly given the company's relationship with its key shareholder and pot beverage-making partner Constellation Brands. That is, if Canopy Growth can roll out those products in a timely way.

In short, there was much to like with Canopy Growth's recent financials. The company isn't there yet with profitability, but I'd give it more of a chance of flipping into the black soon than I would many of its rivals.

Canopy's stock rose almost 20% on Friday in the wake of its earnings announcement, and that bouncy optimism spread throughout the sector. Many investors are coming back to publicly traded weed; hopefully for them, the sector will provide more results like Canopy Growth's, rather than the ugliness that was Aurora's latest.

Here's The Marijuana Stock You've Been Waiting For
A little-known Canadian company just unlocked what some experts think could be the key to profiting off the coming marijuana boom.

And make no mistake – it is coming.

Cannabis legalization is sweeping over North America – 11 states plus Washington, D.C., have all legalized recreational marijuana over the last few years, and full legalization came to Canada in October 2018.

And one under-the-radar Canadian company is poised to explode from this coming marijuana revolution.

Because a game-changing deal just went down between the Ontario government and this powerhouse company...and you need to hear this story today if you have even considered investing in pot stocks.

Simply click here to get the full story now.

Learn more

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Constellation Brands. The Motley Fool has a disclosure policy.


Source

Popular posts

Welcome!!! Is it your First time here?

What are you looking for? Select your points of interest to improve your first-time experience:

Apply & Continue