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Analyst: Big Cannabis Earnings Week Off To 'Rough Start'

Wayne Duggan

Cannabis stocks traded lower on Tuesday after third-quarter earnings season in the group got off to a lackluster start.

On Monday evening, OrganiGram Holdings Inc (NASDAQ: OGI) preannounced third-quarter revenue that was about 45% below consensus Wall Street estimates. On Tuesday, Cronos Group Inc (NASDAQ: CRON) reported 238% revenue growth in the third quarter but also missed analyst revenue estimates by more than 10%.

Cantor Fitzgerald analyst Pablo Zuanic weighed in on the news from OrganiGram and Cronos, calling it a "rough start" to earnings season ahead of the remaining cannabis reports this week.

OganiGram

Zuanic said OrganiGram is now anticipating adjusted EBITDA will fall into negative territory in the fiscal fourth quarter after reporting positive EBITDA in recent quarters. This large drop is well below the CA$6 million in EBITDA Wall Street was anticipating.

Zuanic said the good news for OrganiGram investors is that the company said it expects the Ontario retail cannabis base will triple following the second round of retail licenses granted in the province. OrganiGram has several brands that are among the market share leaders in Ontario.

Looking ahead, OrganiGram said it expects to launch vape pens by year-end, cannabis-infused chocolates in the first quarter of 2020 and nano-emulsion powdered beverages by the second quarter of 2020.

Zuanic reiterated his Overweight rating and CA$17 ($12.85) price target for OrganiGram stock.

Cronos

Zuanic said the Cronos' sales growth was impressive in a difficult Canadian environment. While production cost per gram improved only slightly from the second quarter, average pricing dropped from CA$6.44 in the second quarter to just CA$3.75 in the third quarter.

View more earnings on OGI

Zuanic said CA$3.75 is well below the average price of CA$5 per gram among its recreational Candian cannabis peer group last quarter.

Fortunately, Zuanic said there is a silver lining for other cannabis stock investors.

“We do not consider Cronos a bellwether stock given its small revenue base compared with peers, so read across is limited here, in our view,” he wrote in a note.

Benzinga’s Take

At this point, cannabis stock investors should be used to extreme volatility, and they should expect even more throughout the rest of the week as earnings roll in. The good news is that the heavy selling pressure in cannabis stocks ahead of the reports suggests expectations are relatively low in the near term.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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Latest Ratings for OGI

Date Firm Action From To
Nov 2019 Downgrades Outperform Market Perform
Nov 2019 Initiates Coverage On Overweight
Oct 2019 Upgrades Hold Buy

View More Analyst Ratings for OGI
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