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Weekly Cannabis Stock News: Canopy Growth's Ugly Q1

Eric Volkman, The Motley Fool

For marijuana stocks, this week was mainly about quarterly results. That's because two of the biggest players in the sector, Canopy Growth (NYSE: CGC) and Tilray (NASDAQ: TLRY), unveiled their earnings.

Those numbers were the latest from these companies. However, they weren't exactly the greatest. Outside of that, there was some news with Aurora Cannabis' (NYSE: ACB) funding.

A burning marijuana bud.

Image source: Getty Images.

Canopy Growth's Q1 misses by miles

This week's Most Disappointing Marijuana Stock prize has to go to Canopy Growth. The company fell well short of analyst estimates. Heck, let's be honest -- it didn't even come close.

As for the headline numbers, net revenue for the quarter came in at 90.5 million Canadian dollars. That was over three times the Q1 2019 result -- but remember that recreational marijuana in Canada only became legal toward the end of last year. Therefore, sales of it have increased from nothing to millions of dollars for big companies in the business.

Regardless, that CA$90.5 million was quite some distance from the CA$109 million forecast by analysts.

In terms of production, the company harvested 40,960 kilos during the quarter, up from 9,685 kilos in Q1 of 2019. Meanwhile, the bottom line sank sharply. Canopy Growth's net loss was nearly CA$1.3 million (CA$3.70 per share), from a year-ago shortfall of only around CA$91,000 (CA$0.40 per share). Again, this is far worse than what was expected by the prognosticators, who collectively were modeling a net loss of CA$0.38 per share.

As any stock investor well knows, companies miss their estimates every now and then. But on both the top and bottom lines, Canopy Growth's Q1 was an embarrassing whiff. One big culprit was a notable slide in quarter-on-quarter sales, which was due in no small part to a very sharp drop in cannabis oil and softgel sales -- so sharp, they came perilously close to zero. This has disturbing implications as to how the company is being run.

Canopy Growth's stock was hardly a winner this week. Its price declined nearly 15% from Monday to Friday's close.

Tilray has a mixed Q2

Tilray's freshly reported quarter was better than Canopy Growth's -- but that isn't exactly a ringing endorsement of its performance.

For its Q2 of fiscal 2019, Tilray saw the more-or-less expected pop in revenue, which rose over four times on a year-over-year basis, to $45.9 million. In terms of kilogram-equivalents sold, the tally was 5,588 kilos against Q1 of fiscal 2018's 1,514 kilos. The average analyst estimate for revenue was $41.1 million.

On the bottom line, Tilray, which hasn't recorded a net profit in its one-year-plus of being a publicly traded entity, booked a net loss of $31.2 million ($0.32 per share). This was more than double the amount of red ink in the year-ago quarter's $12.8 million loss. It was also deeper than the average $0.25 per-share deficit expected by analysts.

Concerns about Tilray's worryingly low gross margins and rising costs combined with its one-time status as an investor darling when still a fairly new stock were factors in its nearly 27% stock-price slide this week. Investors likely want to see more discipline with Tilray. Until then, we shouldn't expect much of a recovery in the stock.

Aurora Cannabis gets extra credit

Since the game in Big Marijuana is to build scale and seemingly expand into every attractive product category and international market, companies in this sector are thirsty for capital. Exhibit A: Aurora Cannabis.

Fortunately for Aurora, lenders also seem eager to jump on this trend in the hopes of making a buck on it. The company announced this week that it has managed to "upsize" its existing credit facility. This will grow to around CA$360 million from the existing CA$200 million originated by storied Bank of Montreal. Part of the facility's expansion is due to new companies piling into the lending syndicate, Aurora said.

The company didn't identify these new lenders, although it did say the apparently loyal Bank of Montreal is the syndicate's leader. Aurora also didn't provide much detail about the new funds, save for the fact that they'll take the forms of a revolving credit facility and term loans and will mature in August 2021.

Aurora is one of the busiest acquirers in a very acquisitive sector, plus it has ambitions to continue expanding abroad. We can expect that much (or even all) of the new money in the upsized facility will be channeled into these desires. This is likely what Aurora meant when it said that, "the Company intends to utilize [the credit facility] as it further executes on its strategic growth initiatives."


Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com