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Cannabis stocks continued their post-election rally Monday, as two Canadian industry leaders, Canopy Growth Corp. and Aurora Cannabis Inc. posted earnings, amid rising hopes for U.S. reform under President-elect Democrat Joe Biden.
A third, Tilray Inc., is scheduled to report after the bell.
Further boosting sentiment, a new Gallup poll found seven in 10 Americans now support cannabis legalization, the highest-ever level of support. A full 68% of those polled said they favor legalizing for adult use, up from 66% last year.
Canopy, CGC, +3.87% WEED, +6.11% the biggest cannabis company measured by market capitalization thanks to a $4 billion investment from Corona beer brewer Constellation Brands Inc STZ, +7.16%, posted a narrower-than-expected loss and revenue that beat estimates.
On the company’s earnings call with analysts, Chief Executive David Klein said he believes Biden’s win is an “important step on the path to federal permissibility of cannabis in the U.S. market through decriminalization and descheduling,” according to a FactSet transcript.
Klein welcomed the results of ballot initiatives last week that saw four more states legalize cannabis for adult use — New Jersey, Arizona, Montana and South Dakota — and Mississippi approved it for medical use. The inclusion of a state as big as New Jersey is another boost, as are comments from New York Gov. Andrew Cuomo who has made legalization as priority, he said.
“Further, we think that states which border legalized states, for example, New York and Pennsylvania bordering New Jersey, will see increased pressure to legalize. We’re excited by the prospects of participating in the US THC market, and we’ve already developed a US ecosystem that positions us well at hemp and cannabis powerhouse when, not if, US permissibility happens,” he told analysts.
If the U.S. legalizes cannabis, Canopy has access to the market via its agreement with multi-state operator Acreage Holdings.
Canopy has also launched CBD brands with Martha Stewart in the U.S. and is aiming to become a major cannabis-focused CPG company, said Klein.
Canopy posted a loss of C$32.06 million ($24.6 million), or 9 cents a share, for the quarter to Sept. 30, after income of C$258.9 million, or 25 cents a share, in the year-earlier period.
Revenue net of excise taxes came to C$135.3 million, up from C$85.6 million. The FactSet consensus was for a loss of 37 cents a share and revenue of C$118.1 million.
“We saw another quarter of improvement in our operating expense ratio while our marketing and R&D investments are being re-directed to drive sales,” Chief Financial Officer Mike Lee said in a statement. “Importantly, our end-to-end review has identified cost savings opportunities in the range of $150-$200 million across cost of goods sold, general and administrative expenses, and inventory, and efforts are under way to quickly capture value.”
MKM analyst Bill Kirk said the topline number was better than expected. “With legislative momentum, this quarter is likely enough to keep investors enthused,” he said.
Aurora posted a wider-than-expected loss for its fiscal first quarter but beat revenue estimates. Aurora’s net loss came to C$109.5.2 million, or 92 cents a share, for the quarter to Sept. 30, after income of C$7.4 million, or 12 cents a share, in the year-earlier period.
Revenue fell to C$67.8 million from C$73.7 million in the year-ago period. The FactSet consensus was for a loss of 42 cents a share and revenue of C$63.6 million.
Consumer cannabis revenue fell 3% from the previous quarter to C$34.3 million, while medical cannabis revenue rose 4% to $33.5 million. The company sold 16,139 kilograms of weed in the quarter, at an average net selling price for dried cannabis of C$3.72.
Aurora’s recently installed Chief Executive Miguel Martin told analysts on the company’s earnings call that the quarter was a transitional one, coming after a period of upheaval during which it recorded a C$1.8 billion goodwill impairment charge and its former management was replaced.
“As you know, as part of our business transformation plan, we have made some very tough decisions and done a lot of hard work over the past year with respect to right sizing our cost structure,” Miguel told analysts, according to a FactSet transcript. “This includes taking the largest cut to G&A of any Canadian LP. For context, we cut quarterly SG&A from CAD 100 million to approximately CAD 43 million per quarter and sharply reduced our CapEx. Under my leadership, we will continue our focus on fiscal prudence.”
The company’s recent C$280 million capital raise under an at-the-market plan was conducted to ensure it has the runway to complete the rest of its transformation plan, he said. “We appreciate that cannabis companies are being evaluated with respect to their business performance and their liquidity,” he said.
Aurora will now focus on premium and super premium brands such as vapes, pre-rolls and premium flower offering across different price tiers.
“ For example, gummies is a format we have a number one position and we’re allocating additional resources so that we can enhance and grow that format,” he said.
Don’t miss:Inside the Aurora Cannabis move into the U.S. CBD market
Aurora also disclosed a C$40 million charge to terminate a contract with mixed-martial arts company UFC in the quarter. The companies had joined forces to advance clinical research on CBD products and athletes’ wellness. That deal was announced last summer with some fanfare and was intended to last eight years. Since that time, then-CEO Terry Booth has left and UFC canceled its events at the start of the pandemic.
Aurora’s U.S.-listed shares were last up 19%, although they are down 55% in the year to date. Canopy was up 8% and has gained 20% in the year to date. Tilray TLRY, +8.61% was up 11%.
The Cannabis ETF THCX, +1.54% was up 2.8%, and is down 7% in the year, while the S&P SPX, +2.95% as gained 12%.
