According to a newly released report from the duo of Arcview Market Research and BDS Analytics titled “State of the Legal Cannabis Markets,” global cannabis sales could grow in excess of 24% per year through 2024. After registering $10.9 billion in legal sales in 2018, Arcview and BDS have forecast more than $40 billion in worldwide weed sales in licensed stores by 2024. That makes cannabis one of the fastest-growing industries on the planet.
But as investors, we also know that not every company in a fast-growing industry is necessarily going to live up to expectations. With supply chain issues abounding throughout North America, quite a few popular pot stocks have been major disappointments on the earnings front. The following three marijuana stocks have echoed that disappointment by delivering some of the worst gross margins in the entire industry…
Pardon the pun, but expectations were high heading into Canopy Growth‘s (NYSE:CGC) fourth-quarter earnings report that it would, like Aurora Cannabis, buck the recent weakness in Canadian weed sales and deliver modestly higher sequential quarterly revenue. Although this proved to be the case, the only reason Canopy’s sales rose was the result of much higher ancillary revenue via acquisitions. Both the company’s recreational and medical marijuana revenue declined on a sequential quarterly basis. That led Canopy Growth to report a ghastly gross margin, before fair-value adjustments on biological assets, of 15.9%.
On one hand, a large loss and diminished gross margin was sort of the expectation from Canopy’s fourth-quarter report. Management has made no secret that it’s investing heavily in infrastructure domestically and abroad (especially in the United States) to reap the long-term rewards of cannabis, hemp, and derivative-product expansion. It’s not cheap to lay the groundwork for this infrastructure throughout North America, which is liable to keep Canopy Growth in the red through fiscal 2020.
But on the other hand, this was an even worse quarter than expected. I don’t think anyone quite envisioned Canopy’s recreational and medical cannabis revenue sliding on a sequential quarterly basis. Then again, this is a pot grower that leans very heavily to the generally lower-margin recreational side of the market, with 84% of cannabis sales coming from the adult-use market in the fiscal fourth quarter.
If we’ve learned anything, it’s that while Canopy Growth may have an impressive pile of cash, solid branding, and plenty of peak production potential, it really has a lot to prove on the income side of the equation before it earns its $14 billion market cap…
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