Big Cannabis Names ‘Not There Yet;' Long Path To Profitability Continues

Two of the big cannabis companies released their latest earnings this past Friday, and both pot growers saw revenues rise. But they failed to meet analysts’ expectations.

With these misses putting downward pressure on the stock prices of both Canopy Growth (NASDAQ:CGC) (TSX:WEED) and Cronos Group (NASDAQ:CRON) (TSX:CRON), investors may find themselves still wondering about each company's promised path to profitability. Indeed, investor sentiment is beginning to sound like that cranky toddler in the back seat of the family car asking: “Are we there yet?”

Canopy: Not Much Longer?

“We’re almost there. It won’t be much longer,” comes the answer from the ones in the drivers’ seat. Forced to be patient, however, does not make for smiles coming from anyone else who is along for the ride.

Shares of Canopy Growth held relatively steady on Monday, closing down only 0.2% on the day climbing back up after slipping in earlier trading.

CGC Weekly

On Friday, the Canadian-based marijuana grower that trades on the NASDAQ reported net revenues of C$136 million (USD$108.3M (NYSE:MMM)) in the first quarter that ended June 30. That was up 23% compared to the same period in the previous year. But the bottom line was the C$64-million loss (USD$50.9M) on an adjusted basis.

The other disappointment: the one-time largest cannabis company in the world also lost market share.

On the positive side, the large U.S. market continues to be a major focus for Canopy, and it is actively creating brand awareness, especially with its CBD products, and its partnerships, including with celebrity names like Martha Stewart.

In addition, it continues to be a leading industry innovator, producing a wide variety of products that fall into the cannabis 2.0 category of edibles, oils, and beverages that are aimed at a client base that is not your average pot smoker. But the downside is that many of these new products will not be available for sale until after the second quarter of 2022.

So, when will it reach profitability? The company’s answer was that it remained "committed" to "achieving positive adjusted EBITDA by end of fiscal 2022."

Following the release of the latest figures, a few Canadian analysts covering Canopy lowered their price targets on the stock. They included Canaccord Genuity, which dropped its price target to C$25 from C$30; CIBC lowered its price target to C$27 from C$30; Piper Sandler cut its price target to USD$19 from $24, while Stifel came with the lowest price of C$18, down from its previous mark of $21.

Canopy Growth closed on the Toronto Stock Exchange yesterday at $C24.03, $19.11 on the NASDAQ, down half a percentage in Canada, -0.21% in US trading on the day.

Cronos: Misses Mark In Q2, Too

Over at Cronos Group, meanwhile its second quarter earnings—also unveiled last Friday—showed sales jumped 58% to C$15.6 million (USD$12.4M). But that was well short of analysts’ forecasts of C$18.6 million ($USD14.8M).

As for its adjusted EBITDA, like Canopy, that came in at a loss. In this case a C$49.8-million loss (close to $40M USD).

CRON Weekly TTM

Cronos shares dipped on Friday on the news, but have since regained some ground, although not all of it. The stock closed yesterday at $7.22 on the NASDAQ, down just over a percentage point on the day.

In the last year, Cronos shares are up about 29.5%. They are still well below the high they reached earlier this year, when they hit $12.26 in early February.