It's been a rough summer for marijuana stocks.
Investors have lost faith in the sector amid sluggish sales trends, a lack of legislative progress in the US, and competitive pressures which resulted in tight operating margins and made sustainable profitability look like a pipe dream to date.
In particular, you might have heard that the adult-use recreational cannabis market isn't living up to all the hype. Well, it's true. There have been plenty of problems, including delays in retail stores opening in key provinces. Just ask Acreage Holdings (ACRGF).
The New York-based cannabis company recently reported disappointing revenue for the second-quarter, which came as a result of unexpected delays, mostly regulatory related, in opening certain retail dispensaries and cultivation facilities in several states, including Massachusetts, Ohio, and Florida. And let’s just say it wasn’t exactly great for Acreage stock, which saw its price tumbling nearly 40% this month.
Hundley commented, "We are lowering forward sales and EBITDA expectations for Acreage. As detailed on its August 14th earnings call, the company is making design changes to grow facilities while also making some updates to its processing and retail asset base, in order to incorporate R&D and IP from Canopy Growth (CGC). As a result, this is expected to delay footprint and sales development during 2H:19 and 2020."
The analyst continued, "We are thus dropping sales and EBITDA expectations for 2019 and 2020. Notably, our 2020 sales estimate drops to $249.5MM from previous expectations of $419.4MM, and we now project an EBITDA loss of $6.6MM compared with previous expectations for profitability of $120.1MM. We now value the shares off a normalized EBITDA expectation of $68MM. We use a 30.0x multiple to achieve a forward price target expectation of $15, down from previous expectations of $29. We believe that our updated view of normalized EBITDA is more appropriate, relative to previous earnings expectations, given incremental investment that will likely balance against Canopy-related retrofits and benefits."
All in all, despite cries of sales delay, the rest of Wall Street largely buys into what this cannabis player has to offer, as TipRanks analytics reveal Acreage as a Buy. (See Acreage's price targets and analyst ratings on TipRanks)