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November 16th, 2018

Quarterly Results for Canadian Cannabis Companies

By PRATTE

16 nov EN

Quarterly Results for Canadian Cannabis Companies
Investors were eagerly awaiting earnings from the major Canadian cannabis companies this week after an explosive fall. The markets had another tough week as several big names like Apple pulled the indexes down. The price of a barrel of oil remained in a volatile territory affected by geopolitical tensions and Donald Trump’s tweets. Here is what happened in the markets this week.

Market Brief

Difficult start for the markets on Monday, as Apple and Goldman Sachs, were down at the open. Apple lost more than 5% Monday as investors feared a decline in business growth. “The supply chain around Apple is starting to feel the slippage of demand,” said Matt Miskin of John Hancock. Apples lost weighed on the three main indexes and technology stocks. Indeed, Amazon lost 4.41%, Facebook 2.35%, Twitter 6.07% and Snapchat 2.06%. Then, the Goldman Sachs also pulled the indexes down, dropping more than 7%, its worst drop in seven years after the announcement of a financial scandal in Malaysia.

The three leading indexes moved from positive to negative throughout Tuesday, despite renewed optimism about China-US talks. “There is a clear trend that the market is opening up, then retreating and struggling to keep going until the close,” said Quincy Krosby, Prudential Financial’s Market Strategy Manager.

Wall Street opened higher on Wednesday thanks to a rebound in technology stocks and oil. The results of the publication of the consumer price index in the United States supported the US stock market with results showing an increase of 2.5% over one year due in particular to the rise in fuel prices. A return downward Thursday to begin the day, due to a decline of several major stocks such as Amazon (-2%), Walmart (-0.8%) and Facebook (-1%). Wall Street opened down on Friday, Nvidia’s stock plummeted 18% pulling the Nasdaq with him. The three main indexes are on pace for sharp weekly losses. The Dow and Nasdaq lost 2% this week and the S&P 500 is down 1.8%.

The TSX also started the week negatively, losing 118 points on Monday at the close. The index was driven down by Aphria (-9.5%) and the fall of oil. Same scenario on Tuesday as the decline in the energy sector continued to weigh down on the index. The Toronto stock market opened slightly higher Wednesday, helped by a rise in the black gold. Indeed, a possible decrease in supply by OPEC members and their allies is responsible for the increase. Thursday, the TSX opened slightly lower after a report revealed a loss of 23,000 jobs in October in Canada. The TSX opened down on Friday, pulled down by tech stocks.

Oil

Another tough week for oil as OPEC worries about a weaker demand than what was expected. In fact, world demand is expected to increase by 1.50 million barrels per day compared to 2017. This is a drop of 40,000 barrels a day, less than what was forecast last month. China and the Middle East will need less oil than expected while supply is up, especially in the United States. “Although the market has reached a balance for the moment, the 2019 forecast for non-OPEC supply growth points to higher volumes, outpacing the rise in global demand and leading to a growing excess of offer in the market, “said the cartel in its monthly oil report.

Geopolitics and Donald Trump’s tweets are responsible for the volatility that has hit oil recently. “Hopefully, Saudi Arabia and OPEC will not be cutting oil production. Oil prices should be much lower based on supply!” wrote the president on Twitter. US crude oil fell 7% on Tuesday, its lowest level in a year. OPEC members and Russia will meet on December 6th to discuss the extension of the cut of oil production in place since January 2017 to drain a global crude glut. Saudi Arabia has already announced plans to reduce production and reduce exports.

Aurora Cannabis

Aurora revealed its earnings this week which showed an increase in sales and profits. Aurora achieved a turnover of 29.7 million. This is a quarterly net profit of $104.2 million, up from $3.6 million in the same period in 2017. The Canadian company saw its demand for marijuana increased in the first few weeks of legalization in Canada and anticipates that demand will exceed supply for some time.

“We have heard the discomfort of the provinces, which, in general, have not been able to provide sufficient supply,” said Cam Battley, Chief Corporate Officer at Aurora. “We think we have done better than other companies, our peers. We will accelerate the pace, we will soon catch up with some of the delay. But we cannot do it immediately.” However, quarterly results for Canadian cannabis companies do not include marijuana sales that occurred after legalization. In short, the next quarterly results will be decisive for large Canadian companies, especially if supply fails to supply demand.
Tilray
The Nanaimo-based company in British Columbia posted weaker-than-expected quarterly results this week. Analysts had estimated losses of $12.7 million, but Tilray posted losses of $18.7 million in its third quarter ending September 30th. The company explains its results by an increase in its expenses regarding the operation of Tilray. Indeed, the company continues to grow and expand internationally and thus, must invest more money. However, the cannabis producer saw its revenues climb by 85%.

“We are in the early stages of achieving our growth potential and our team continues to strategically execute on disciplined operational initiatives and investments to support Tilray’s long-term, sustainable growth as the pace of legalization continues to accelerate around the world,” said Tilray CEO Brendan Kennedy in a statement. The company’s stock has jumped 1600% since entering the stock market with a 30% increase in early November. Following the announcement of its quarterly results, the stock lost 4.8%.
Canopy Growth
It was Canopy Growth’s turn to file its quarterly results on Wednesday. The Ontario company also reported worse-than-expected results with losses of $330.6 million. The company attributes its losses to an increase in its expenditures for the legalization of marijuana in Canada.
Its quarterly revenues totalled 23.3 million compared to 17.6 million in the previous quarter, an increase of 33%. However, its growth rate is less than that of rivals like Tilray and Aphria. Following the release of its results, the company’s stock was down 8%.

 

 

Pratte Portfolio Management is registered with the Autorité des marchés financiers (AMF) and the Ontario Securities Commission (OSC).

This newsletter is solely the work of the author for the private information of clients. The views (including any recommendations) expressed in this newsletter are those of the author alone, and are not necessarily those of Pratte Portfolio Management.

The information contained in this newsletter is drawn from sources believed to be reliable, but the accuracy and completeness of the information is not guaranteed, nor in providing it do the author or Pratte Portfolio Management assume any liability. This information is given as of the date appearing on this newsletter, and neither the author nor Pratte Portfolio Management assume any obligation to update the information or advise on further developments relating to information provided herein. This newsletter is intended for distribution in those jurisdictions where both the author and Pratte Portfolio Management are registered to do business in securities. Any distribution or dissemination of this newsletter in any other jurisdictions is prohibited. The holdings of the author, Pratte Portfolio Management., its affiliated companies and holdings of their respective directors, officers and employees and companies with which they are associated may, from time to time, include the securities mentioned in this newsletter.

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