Stocks in bear market mode – what to do now
The S&P 500 Index – as well as many other broad market indices – have fallen fast and hard into a bear market (typically defined as a drop of 20% or more). Cannabis stocks, meanwhile, have fared even worse.
The average cannabis stock we track is down more than 75% from its 52-week high.
What do cannabis investors and operators do from here?
We wrote an in-depth article detailing our thoughts here. In short, our fundamental investment thesis hasn’t changed.
New analysis: Milligrams per store for the Florida market
We created a new data point for investors to analyze for the Florida cannabis market: total milligrams sold per total stores. This metric is a straightforward calculation of total milligrams of THC a company sells (THC, CBD and smokable form) divided by the total stores they operate.
Milligrams sold per store is a good metric to track and compare across businesses because it can signal store efficiency, which, ultimately, plays a significant role in a company’s profit margin.
More detail and a link to the data with interactive charting can be found here.
KushCo Holdings misses revenue,retracts guidance
KushCo Holdings (OTCQX: KSHB) negatively pre-announced their fiscal second quarter revenue at around $30 million versus analyst estimates of $43.4 million. The company also retracted its fiscal 2020 overall revenue guidance of $230 million to $250 million and hemp revenue guidance of $25 million.
The company cited multiple factors for the fiscal second quarter revenue miss:
- Slow rebound in demand for vape products.
- Continued weakness in the California market.
- Slow rollout of the company’s hemp business.
- Extension of the Chinese New Year holiday.
- Delayed rollout of cannabis 2.0 products in Canada.
The company expects to post full financial results and host an earnings call in April.
Columbia Care reports fourth quarter results
On Tuesday, Columbia Care (NEO: CCHW) reported its fourth-quarter 2019 financial results, missing sales and EBITDA estimates and lowering guidance for its Green Solutions acquisition.
Management guided 2020 Columbia Care sales of $155 million to $180 million and guided pro forma sales – including The Green Solution acquisition – of $235 million to $265 million.
That implies The Green Solution had $79 million to $85 million in sales, which is less than the $87.5 million of 2020 revenue implied by the 1.6X 2020 sales multiple mentioned when the deal was announced.
The new guidance on sales at The Green Solution implies about 8% to 16% growth compared to the $73.3 million revenue it had for the trailing twelve months ended September 2019.
We do not think the lower revenue guidance affects the strategic rationale for buying The Green Solution. On the fourth quarter call, Columbia Care CEO Nick Vita noted that The Green Solution’s experience successfully navigating Colorado’s switch from medical to adult-use cannabis will help Columbia Care when its medical markets do the same.
Other key takeaways from the call:
- The guidance of $155 million-$180 million of revenue and $235 million-$265 million pro forma revenue does not include any potential sales from the legal shift to adult use in any markets, making adult use an upside in their model.
- Florida will get more competitive: Columbia will have 14 dispensaries in Florida by the end of the first quarter, up from the 10 dispensaries in our Investor Intelligence Florida State data as of March 5, so we should see four more dispensaries open in the next three weeks.
- In addition to the new dispensaries, Columbia Care will deploy six to eight “pop-up” dispensaries in Florida. These are basically subleases that will drive additional revenue with low capital expenditures and augment their delivery service.
- The company will expand its credit card and rebrand it, possibly co-branding with large regional operators.
- The credit card also will expand to B2B purchases and sales – i.e., operators trying to finance working capital, “especially California, where everyone is being destroyed by working capital,” Vita said.
- Pending acquisition, The Green Solution in Colorado had a great harvest and plans to start offering flower in the wholesale market.
CV Sciences red flag: delayed earnings report
CV Sciences (OTCQB: CVSI) was originally scheduled to report their fourth quarter 2019 financials and host a conference call March 10, but late Tuesday the company pushed the release and call to March 16.
Companies rarely delay their planned earnings releases for positive reasons.
CV Sciences did not offer a reason for pushing back the call in its news release, so we can’t draw definitive conclusions. However, because of the long history of many companies delaying earnings releases and then posting negative news or results, the change raises a red flag for investors.
48North management changes
Senior management changes have seemingly become a weekly occurrence in the cannabis industry.
Vennat replaces Alison Gordon, who had been the CEO of 48North for nearly three years. Gordon will remain on the broad of directors.
No replacement was named for the chief operating officer role.
Craig Behnke can be reached at firstname.lastname@example.org.
Mike Regan can be reached at email@example.com.