Aurora’s tough road ahead, Canopy’s new priorities, Trulieve’s Florida market share & Neptune’s US hemp product launch

The cannabis industry continues its march toward maturity – something reflected in how companies have responded to the latest round of earnings results from the industry.

Aurora’s difficult EBITDA targets

Canada’s Aurora Cannabis reported its fiscal second-quarter 2020 results on Thursday, and the results imply a need to achieve an incredibly difficult task: Drive massive revenue growth while making deep, structural spending cuts.

What Aurora must do in terms of sales and expenses in order to produce that level of EBITDA will be difficult given its current cost structure, consumers trending to value brands, the Canadian market’s excess inventory and continued production overcapacity of Canada’s licensed producers.

Simply put, we believe there is a very low probability that Aurora will meet its fiscal 2021 EBITDA goals.

Check out the detailed analysis supporting our claim here.

Canopy reports fiscal 3Q20 results, first with new CEO

Canopy Growth (NYSE: CGC) released fiscal third-quarter 2020 results, the Canadian company’s first report under new CEO David Klein, who laid out his top four priorities for the business.

We like the priorities that were outlined, but we wish that Nos. 3 and 4 were Nos. 1 and 2.

We have long advocated for management teams to clearly communicate their business plans and articulate viable ways to achieve them – and part of that communication is to guide conservatively and deliver consistently.

That is the best way to attract long-term investors and lower a company’s cost of capital.

The new CEO’s priorities include:

  1. Improving connection with consumers.
  2. More focus and discipline throughout the organization.
  3. Defining a very visible path to profitability and positive cash flow (through inventory reductions, asset realignment, etc.).
  4. Building credibility with stakeholders by delivering on commitments.

The first two priorities should be a focus for all companies all the time, so we’re not impressed with those items as a differentiation from competitors.

The second two priorities are far less common in the cannabis landscape. Time will tell if management can execute on those.

Investors apparently liked what the new CEO said on the call; the stock was up around 14% through midday Friday.

Canopy is in an enviable position right now as most cannabis companies are burning cash and struggling to find financing to continue their operations. Canopy has more than CA$2 billion of cash on the balance sheet, so its risk of financial distress is negligible compared to competitors.

We will have a more detailed analysis of the financials after we pour through the details and speak with Canopy management.

Trulieve recovers market share in Florida

Trulieve’s milligrams of CBD sold per week is still down significantly from December 2019 levels, but total milligrams sold (THC + CBD + smokable products) rebounded strongly this week.

CBD Milligrams Sold 12/5/19 12/12/19 12/19/19 12/26/19 1/1/20 1/9/20 1/16/20 1/23/20 1/30/20 2/6/20
Trulieve 758,862 630,909 682,054 669,622 404,843 528,997 437,044 294,232 182,615 201,548

When you look at the total milligrams, Trulieve’s market share in Florida rebounded to 47.6% from last week’s 41.7%.

Market Share 12/5/19 12/12/19 12/19/19 12/26/19 1/1/20 1/9/20 1/16/20 1/23/20 1/30/20 2/6/20
Trulieve 48.7% 49.7% 51.0% 48.8% 46.6% 48.1% 46.3% 47.0% 41.7% 47.6%

Weekly data can be volatile and give false signals that soon reverse themselves. We will continue to monitor this data for sustainable trends to help you better position your cannabis investment portfolio.

The in-depth look we posted earlier this week is available here, and the excel spreadsheet of the data and interactive charting tool can be downloaded here.

Akerna 2Q20 earnings

Akerna (Nasdaq: KERN) reported its F2Q20 results and filed its 10Q (available here) on Wednesday after markets closed.

The Denver company’s stock declined 15% the next day, as it appeared that Akerna beat the consensus sales estimate of $3.3 million (literally a single analyst’s estimate) but missed on gross margin (50.5% versus an assumption of sequentially flat at 56.2%) and EBITDA.

We believe this generally misses the point since the nominal numbers are rather small, two recent acquisitions are not yet in the numbers and the overall balance sheet remains strong.

While we do not know the details behind the lone analyst’s estimates, we assume the $500,000 of expenses related to the Solo Sciences acquisition were not included. (Because it’s arguably one-time in nature, it should be excluded from analysis of the quarterly results.)

On the surface, we were encouraged by the fact that revenue growth continued.

We were also pleased to hear the comparative cost advantage of the Solo tag at $0.10-$0.15 per tag compared with $0.50 per tag for RFID such as used by Metrc. This tag revenue should give Akerna a direct revenue driver tied to cannabis production.

The balance sheet remains strong as well with $18.8 million of cash, and we were impressed with new Chief Financial Officer John Fowle’s comments about a longer-term focus on shareholder value compared to hitting short-term targets.

“We’re not focused necessarily on making decisions to hit a quarterly number, revenue, profit or cash,” he said.

“We are clearly and squarely focused on delivering long-term value where we want to. What are the decisions we’re making today that can put us in a position to be where we need to be five years from now?”

The key concerning item is that bad-debt expense has significantly increased to 14% of sales in the F2Q20, from 8% in F1Q20 and 2% in F1Q19 and F2Q19.

Neptune Wellness reports 3Q20, launches US hemp product line

Canada’s Neptune Wellness Solutions (Nasdaq: NEPT) on Thursday reported its fiscal third-quarter 2020 financial results, updated its business strategy and launched a hemp product line in the United States.

Management noted that weaker-than-expected market conditions in the Canadian market resulted in lower profitability than forecast. That reality has spurred the company to lower its cost structure and expand into new markets.

One of the results of that market expansion is a new direct-to-consumer brand.

“We are on track to fully developing a direct-to-consumer model that I believe is the future of cannabis, nutrition and retail,” Chief Executive Officer Michael Cammarata said.

“I believe our consumer business has the potential to become one of the most profitable segments of Neptune’s future business.”

Management also corroborated that slower-than-expected retail store rollouts in Canada have negatively impacted sales.

In a separate news release, Neptune detailed the launch of two U.S. hemp product lines – Forest Remedies and Ocean Remedies.

The product release consists of 11 different hemp extracts, including six ingestible oils, two soothing balms, one soft gel bottle, a massage oil and a pet soother.

Cresco hires new chief commercial officer

In yet another example of a cannabis company hiring senior management talent from traditional consumer goods companies, Chicago-based Cresco Labs (CSE: CL) hired Greg Butler in the role of chief commercial officer.

Butler is now responsible for demand and commercial strategic planning, strengthening the sales and marketing teams, leading the launch of all new products and innovation as well as branding M&A and integration.

He has a background with top-tier consumer packaged goods companies such as Pfizer, Johnson & Johnson and Molson Coors. Butler also headed wellness retail execution for the Walgreens pharmacy and health-care chain.

Mike Regan can be reached at [email protected].

Craig Behnke can be reached at [email protected].