/Have These Tumbling Cannabis Stocks Hit Bottom Yet?
Have These Tumbling Cannabis Stocks Hit Bottom Yet?

Have These Tumbling Cannabis Stocks Hit Bottom Yet?


Have These Tumbling Cannabis Stocks Hit Bottom Yet?

Shares of cannabis stocks large and small were beaten down after soft second-quarter results disappointed investors expecting soaring sales of recreational cannabis in Canada that haven’t materialized. As a result, some of the world’s largest cannabis companies have stock prices miles below their peaks.

Has the market already pulled these cannabis kings down as far as it can, or could they sink even lower? Here’s what to look for from each one of these formerly high-flying marijuana stocks.

Company (Symbol) Gain (Loss) Since 52-Week High Market Cap
Tilray (NASDAQ: TLRY) (89%) $3.1 billion
Cronos Group (NASDAQ: CRON) (52%) $4.2 billion

Data source: Yahoo! Finance.

1. Tilray: Two more years

During the second quarter of 2019, total revenue bounded 371% higher than the previous year to $45.9 million. Unfortunately for Tilray, that wasn’t the only line item that rose. Over the same period, Tilray reported that the cost of goods sold soared 504% higher.

During the three months ended June, Tilray’s gross margin fell from 43% of revenue in 2018 to just 27% this year. To Tilray’s credit, operating expenses rose more slowly than top-line revenue but the company still ended up posting a $32.9 million loss.

Another reason investors are nervous about Tilray is its ownership structure. Privateer Holdings is still holding 75 million shares of Tilray, which works out to around 77% of the total shares outstanding. Privateer will fold itself into Tilray and retire its unlocked shares after creating new shares that include a two-year lockup.

It should probably be taken as a sign of confidence that Privateer Holdings hasn’t sold a significant portion of its Tilray shares and is willing to lock up its investment for another two years. However, investors need to think much further ahead than that.

The market’s expectations are still high, and there isn’t much of a cash cushion to fall back on if the company doesn’t start posting positive cash flows in the next several quarters. Tilray finished June with $221 million in cash and securities after losing $33 million during the second quarter.

With a market cap that’s still above $3 billion and a negative tangible book value, this stock is a long way from any bottom. In fact, the stock’s still trading at a sky-high 16.6 times forward revenue expectations, and more trouble meeting those expectations could still result in heavy losses.

Pot leaf on a one hundred dollar bill.

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Pot leaf on a one hundred dollar bill.

Image source: Getty Images.

2. Cronos Group: Transitioning footprint

During the second quarter, Cronos Group recorded a gross profit that was 6% lower than during the previous year period. With just CA$5.9 million to work with, operations lost CA$20.4 million.

Even though the company’s not making ends meet at home, this licensed Canadian producer has convinced investors that building a global supply chain will finally drive profits. To make it happen, Cronos Group has invested heavily in operations around the globe without much to show for it yet. Compared with the previous year period, international sales fell 8% to just CA$418,000 in the second quarter.

While operations haven’t been impressive, Cronos has been busy. The Canadian cannabis producer opened a new research and development center in Israel, and more recently the company spent CA$300 million to enter the U.S. CBD market in a big way. Cronos Group now owns the popular Lord Jones brand, which sells CBD-loaded lotions that reduce surface-level pains, according to numerous anecdotal reports.

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