The cannabis industry is growing into a giant, but investors want to see results now…
Investors are tired of waiting for next quarter.
That is the unmistakable message the markets are sending to cannabis companies right now. What’s more, any hint of failure is making investors sell all cannabis names, even the ones that are succeeding beyond expectations.
When Aphria Inc. (NYSE: APHA) announced its results, the stock shot up by 40%. The Supreme Cannabis Company Inc. (TSXV: FIRE, OTC: SPRWF) went up 16% after it pre-announced its revenues. The Village Farms International Inc. (Nasdaq: VFF) stock price also climbed, and the stock price for MedMen Enterprises Inc. (OTC: MMNFF, CSE: MMEN) jumped 20%.
But even revenue increases are not enough to cause those kinds of gains.
Tilray Inc. (Nasdaq: TLRY) reported very good revenue gains – nearly doubling what it sold last quarter in the Canadian recreational market
However, the stock price got hammered because of poor cost controls. Tilray’s failure brought the entire sector down, though the fact that it happened on the day of an 800-point rout for the Dow Jones Industrial Average didn’t help matters.
But this set of earnings has been important.
And I see it as a sign of one clear thing that the best CEOs are going to focus on moving forward…
Investors Want Results Now
With all of these earnings, it shows that investors have lost their patience.
It’s a shame, and it’s perplexing because efficient markets are supposed to look forward.
In the case of Canopy Growth Corp. (NYSE: CGC) and its recent earnings (I’ll have more on that for our members of the Cannabis Investor’s Report), there was one number in its earnings report that was almost totally ignored.
That number indicated that Canopy has seen the worst of its problems and is already on a massive growth trajectory.
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Demanding results now is a natural reaction for a market that has seen a tough summer, but the natural reaction is a shortsighted one.
Recreational cannabis has been legal in Canada for less than a year; the first retail stores in Ontario are less than one month old.
In California, it’s been less than two years that recreational cannabis has been legal. In Nevada, recreational cannabis sales are just a little over a year old. Florida is the fastest growing market in the U.S., and it has not even begun to show its true power.
We have yet to see the first recreational sales from Michigan and Illinois, which have passed the necessary laws. Or from New York or New Jersey, which will legalize next year if those legislatures can get their acts together.
And none of that even reflects the changes coming in other U.S. states and internationally in Mexico, Latin America, Europe, and even Asia. We’re in the very early stages of a massive transformative shift in the economy.
It’s not sensible to focus on a single quarter for any company at this early stage.
But if markets are determined to overreact, cannabis CEOs have to address the reality of what their shareholders are expecting.
In case any of them haven’t got the message yet, here it is: Focus on the two things most important to a company in the short term – growing revenues and containing costs. That was what MedMen did, and that company may have reversed a year-long decline in its stock price.
That’s what Canopy and everyone else in the industry needs to be doing right now.
That inability to adjust is why Bruce Linton lost his job at Canopy.
Constellation Brand (NYSE: STZ), which essentially controls Canopy, has been a master over the years at working on the long-term vision of its business while still focusing on what investors are demanding and expecting.
Bruce was only a master of the first part. His investments will make Constellation and other Canopy investors billions of dollars over time, but Constellation recognized that shareholders need something for the here and now, too.
I’ll have an update about Canopy in our different publications today and tomorrow, see keep an eye out for that.
Executive Director, National Institute for Cannabis Investors
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10 responses to “Investors Want Results Now”
August 19 2019