Cannabis earnings season just kicked off, and some of the biggest industry names are reporting quarterly numbers soon.
I dive deeper into these earnings and tell you how inflation affects profits in the latest Marijuana Market Update.
Money & Market’s Cannabis Index
We can look at where cannabis stocks are now by zeroing in on the Money & Markets Cannabis Index.
The Money & Markets Cannabis Index is an equal-weighted index that covers 152 cannabis companies listed on all U.S. exchanges. These companies each have a market cap of more than $10 million.
The index is down almost 40% this year, but there was a recent uptick after the U.S. Senate announced a bill that would legalize cannabis at the federal level.
Hopes aren’t high that the bill will pass.
But investors hope that something related to cannabis legalization or a lift on banking restrictions will happen soon.
I don't know that the prospects are good on either front.
Cannabis Quarterly Earnings
Let’s see if cannabis earnings can move the needle at all.
Some companies have already released their quarterly earnings.
Tilray, Inc. (Nasdaq: TLRY) and Turning Point Brands Inc (NYSE: TPB) were the biggest names to report earnings at the end of July. Both reported a slight uptick in sales compared to the previous quarter.
Tilray‘s quarter was flat, but it still reported 8% growth from the same quarter a year ago.
On the other hand, Turning Point reported sales of $103 million, but that’s down 16% from the same quarter a year ago.
SOL Global Investments Corp (OTC: SOLCF) suffered massive losses in its previous quarter.
The company lost $26 million in revenue, which was 217% lower than the same quarter last year.
In its quarterly report, SOLCF said it was paring back its investments in the cannabis space to focus on other avenues of revenue.
This could give us a glimpse of what's ahead for other major cannabis earnings.
Earnings Outlook for Other Major Cannabis Players
Several major cannabis players are set to report earnings this month.
On Friday, Canopy Growth Corp. (Nasdaq: CGC) reported a $1.6 billion loss, or $4.04 per share.
Curaleaf Holdings Inc. (OTC: CURLF) will report next week on August 8, with an expected EPS loss of $0.03.
Negative EPS growth is a theme for all the stocks featured above.
Now, this doesn't mean these cannabis companies will report overall losses.
Sentieo expects Curaleaf’s revenue in the neighborhood of $337 million — up 8% from a year ago. It also projects Trulieve Cannabis Corp. (OTC: TCNNF) to post revenue of $324 million — a 50% bump from last year.
If those expectations pan out, it will be good news in a cannabis market that's dealing with inflationary pressures.
When inflation is high, cannabis sellers reduce the price of flower to offload overhead supply.
Cannabis Earnings Adjust Due To Inflation
Analysts have already started to reduce their sales forecasts for the cannabis market.
In a recent Barron’s report, Cowen analyst Vivian Azer dropped her annual growth forecast for the cannabis industry from 13% to 6%.
Inflation could push more Americans into the illicit cannabis market despite lower prices on the legal market.
Projections for annual sales this year are now at $26.4 billion.
For 2027, legal sales projections are down to $45.6 billion from $49.5 billion.
If cannabis companies show slight growth, or even a drop in sales, it could create even stronger headwinds for cannabis stocks.
Bottom line: The slight prospect of federal legalization in the U.S. spurred the recent uptick in the market.
When that doesn't come to fruition — coupled with lackluster quarterly earnings from cannabis operators — we could see more declines in cannabis stocks overall.
That's all for me this week.
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Safe trading,
Matt Clark
Research Analyst, Money & Markets
