Pot stocks have brought interest among investors with their curiosity in the potential booming recreational and medical marijuana market. What is it that has brought such high volume to this space?
The high volatility for one makes it favorable for swingtraders, and somewhat modest for the “buy and hold” investor. Or, maybe people look at what Tilray achieved in 2018 the same can be said about upcoming companies.
All that we can be sure of is with further legalization expecting in the near and distant future, marijuana and the distributors are here to stay.
Earnings: Strong sales, lower profits
Last weeks earnings reports kicked-off with Aurora Cannabis releasing sales amounting to $C 54.178 million, up 363% from a year ago. However, signs of net profits declining due to increased costs in expansion and distribution costs while also dealing with excise taxes for medical-marijuana patients. Aurora CFO Glen Ibbott iterated detailed reasons why we saw this decrease in gross margins.
“The decrease was primarily due to a lower average selling price per gram of dried cannabis, the impact of excise taxes on medical cannabis net revenues, and a temporarily lower proportion of cannabis oil sales in the company’s sales mix ratio. Also impacting gross margin were increased packaging requirements under the Cannabis Act and one-time ramp-up and optimization costs as our Sky facility was brought up to full production.”
Packaging regulations and initiative of the Aurora Sky cannabis production facility had company costs raise exponentially. Aurora is aiming to reduce production costs at the expense of lower expected profits.
Marijuana companies are racing for distribution power, but at a lower cost. For example, costs of producing dried buds rose from C$1.45 to C$1.92. However, this is projected to decrease once the Sky facility runs at full capacity.
Aurora Cannabis (ACB) currently sits at $7.01, and competitors like Cronos Group (CRON) $21.70, Tilray (TLRY) $80.93 moving swiftly to gain market share.
In recent news, Tilray has just made its largest acquisition yet from buying Manitoba Markets for $317 million in hopes to push the cannabis giant into US markets via the CBD products.
Tilray stock rose 4.07 on the day.
The CBD market has become the point of interest for many cannabis retailers in their quest for U.S. sales. In an interview with CNBC, Chief Executive Brendan Kennedy provided his insight in the acquisition and how this impacts Tilray’s future.
“It’s really hard to know you know,” he said, “current estimates are that he hemp derived CBD market in the US and North America could be around $22 billion.”
He mentioned how buying Manitoba Markets was a “strategic acquisition to accelerate [their] entry in to the US.”
“Consumers can buy these products and they have a supply chain that ties them into about 30,000 acres of hemp growing in North America.”