As a result, Landry now believes that full-year fiscal 2019 revenues at Aurora will be only C$289.7 million (an 11% reduction from previous estimates), with larger losses of C$109.6 million EBITDA to boot. Furthermore, the analyst postulates weaker revenues in fiscal 2020 as well — C$630.6 million, or about 4% below previous estimates.
On the plus side, Landry believes EBITDA will turn positive in 2020 — C$101.4 million — and the companys net loss will shrink to just C$0.09 per share.
Marijuana stocks fall as the sector anticipates earnings from Tilray (TLRY) and Aurora Cannabis (ACB)
Importantly, if Landry seems less enthusiastic about Aurora stock than he once was, the analyst does not blame Aurora for this. Instead, Landry notes that “provincial regulators” have capped the number of legal marijuana retail stores that can be built, artificially depressing sales and “hindering black market penetration.”
The marijuana sector in both Canada and the U.S. was a sea of red ink, with the ETFMG Alternative Harvest ETF MJ, -5.07% down 5.5% in Monday afternoon trading. The Horizons Marijuana Life Sciences Index ETF HMMJ, -4.03% was off 4.4% and its sister fund, the US Marijuana Index ETF, dropped 2.8%. Since the beginning of May, all the major cannabis exchange-traded funds are down more than 7%.
Translation: Canadians may still be buying a lot of weed. Its just that theyre still buying a lot of it illegally, because there arent enough places to buy the stuff legally. In other words, the demand is still there, if regulators will just get out of the way and allow Aurora to satisfy that demand … legally.
Elsewhere in Canada, CannTrust Holdings Inc. CTST, -3.00% TRST, +0.38% said that it had completed a letter of intent with Canada’s second most populous province, Quebec, to deliver recreational cannabis. The company did not disclose the quantity it had agreed to supply. CannTrust was down 4% in Monday trading.
Now, in regulators defense, Landry notes that theyve explained their restrictions on licensing new stores by saying theres not currently enough legal pot being produced to justify opening new stores. But again, while this may sound like bad news, it actually may not be.
“Supply constraints are waning,” notes Landry “with ACBs capacity going from 100 tonnes planted as of January to 120 tonnes planted as of February.” Assuming regulators explanation for why theyve been slow to approve more stores is truthful, and correct, then the analyst predicts “we could see provinces begin to lift the cap on retail licences in the near-term, thereby boosting sales growth” overall, and for Aurora in particular.
Landry notes that Aurora holds leading position in “dried flower SKUs” (i.e. different types of smoke-able pot for sale), occupying “over 25% of digital shelf space in 2019.” As a dominant force in the market, increased sales of cannabis, in general, should disproportionately benefit Aurora , in particular.
Cannabis stocks were mostly lower Monday, amid a broad market tumble related to a trade fight between the U.S. and China.
The marijuana sector in both Canada and the U.S. was a sea of red ink, with the ETFMG Alternative Harvest ETF MJ, +2.37% down 5.5% in Monday afternoon trading. The Horizons Marijuana Life Sciences Index ETF HMMJ, +3.24% was off 4.4% and its sister fund, the US Marijuana Index ETF, dropped 2.8%. Since the beginning of May, all the major cannabis exchange-traded funds are down more than 7%.
The worlds second largest cannabis company by market value, Aurora Cannabis Inc. ACB, +4.49% ACB, +4.52% said Monday that Radient Technologies Inc. RDDTF, +3.41% delivered its first batch of cannabis derivatives. According to Aurora, Radients technology is expected to be able to process about 300,000 kilograms of cannabis biomass at a single location. Aurora stock fell 4.5% in Monday trading.
Elsewhere in Canada, CannTrust Holdings Inc. CTST, +6.11% TRST, +6.64% said that it had completed a letter of intent with Canadas second most populous province, Quebec, to deliver recreational cannabis. The company did not disclose the quantity it had agreed to supply. CannTrust was down 4% in Monday trading.
Canopy Growth Corp. CGC, +3.52% WEED, +3.52% fell 7.1%, Tilray Inc. TLRY, +4.88% was down 9.2%, Cronos Group Inc. CRON, +6.95% CRON, +6.20% fell nearly 8% and Aphria Inc. APHA, +2.81% APHA, +2.30% was down 7.1%.
This week is a significant one for cannabis sector earnings. Tilray and Aurora are both set to report earnings Tuesday after the closing bell, though Auroras conference call is expected Wednesday morning. CannTrust and Dutchman are also expected to report Tuesday.
Aleafia Health Inc. ALEAF, -2.32% reported first-quarter earnings Monday before the opening bell, logging losses of C$20.2 million — including a one time noncash payment related to its acquisition of Emblem Corp. — on revenue of C$1.5 million. Aleafia stock fell 5.3%.
Green Organic Dutchman Holdings Ltd. TGOD, -0.52% , TGODF, -0.07% which has not yet sold any recreational cannabis in Canada, signed a distribution agreement for one of its cannabidiol, or CBD, brands for the German pharmacy market. Dutchman stock was down 4.6%.
In the U.S., Acreage Holdings Inc. ACRGF, +1.48% said Monday that it was selling its real-estate assets to a real-estate investment trust that had been recently formed. Canopy Growth last month purchased the right to acquire Acreage upon federal cannabis legalization in the U.S. The investment trust called GreenAcreage Real Estate Corp. will buy the assets and lease them back to Acreage under the deal. The investment trust will be run by GreenAcreage Management, in which Acreage holds a 20% stake.
Cowen analyst Vivien Azer initiated research coverage of Greenlane Holdings Inc. GNLN, +5.02% , which recently went public on the Nasdaq. Azer rates the company the equivalent of a buy and has a $21 target price. Greenlane went public at $17 a share but closed Friday at $16.25 and was down 5.3% in Monday trading.
In the note to clients Monday, Azer wrote that the current share price represents an attractive entry point given the companys prospects for robust revenue growth and profitability.
Max A. Cherney is a MarketWatch reporter based in San Francisco. Follow him on Twitter @chernandburn.