Marijuana Stocks: What do Aurora Cannabis’ and Canopy Growth’s earnings tell us

marijuana stocks

From Keith Speights: Investors eagerly looked forward to finding out how the first quarter of sales in Canada’s recreational-marijuana market fared. In recent days, they got those initial results from two of the largest Canadian marijuana companies.

Aurora Cannabis (NYSE:ACB)and Canopy Growth (NYSE:CGC)each reported the results for their quarters ended Dec. 31, which included 11 weeks of recreational-pot sales. While several other Canadian producers still have to provide their quarterly updates, what Aurora and Canopy had to say provides some big clues as to what investors can expect for other marijuana stocks.

Soaring sales — but don’t count on big market shares

The sales growth that both Aurora Cannabis and Canopy Growth achieved in their latest quarters was impressive. Aurora posted a year-over-year net revenue increase of 363%. Canopy’s net revenue soared 283%. As you might expect, this tremendous growth stemmed from the initial sales of recreational pot in Canada.

When Cronos Group (NASDAQ:CRON)Tilray (NASDAQ:TLRY), and other major Canadian marijuana producers report their financial results over the next several weeks, you can bet they’ll announce huge sales growth as well. But don’t expect any of the other companies to have big shares of the Canadian recreational=pot market.

Aurora Cannabis stated that it had a market share of 20% of consumer sales, based on data from Health Canada. The company achieved that market share with recreational-pot sales totaling $21.6 million Canadian. Canopy’s recreational sales were much greater — CA$57.7 million. Between Aurora and Canopy, there’s not a whole lot of market share left for the other producers to carve up.

Remember, too, that Aurora and Canopy claim significantly higher production capacities than their peers. A company can only sell what it can produce or source from another marijuana grower. With the demand for recreational pot in Canada outstripping supply, market share will correlate directly with capacity much more so than any other differentiating factor between the various product brands.

A fuzzy picture for medical cannabis

Based on Aurora’s and Canopy’s updates, there could be significant differences in how well other companies performed in the Canadian medical-cannabis market.

Aurora Cannabis reported that sales of dried cannabis for medical purposes in Canada increased 12% from the previous quarter. On the other hand, Canopy Growth’s Canadian medical-cannabis sales fell. Why were there such different outcomes?

Aurora’s quarter-over-quarter comparison was helped by having a full quarter of MedReleaf sales. The company completed its acquisition of MedReleaf on July 25, 2018.

Canopy attributed its decline in Canadian medical sales to a couple of factors. First, the company thinks the ability for patients to buy recreational pot had fewer patients seeking prescriptions for medical cannabis. Second, Canopy has targeted its well-known Tweed brand for the recreational-marijuana market and has refocused its Spectrum brand for the medical market.

The unique circumstances for Aurora and Canopy make it difficult to know for sure how other companies such as Cronos and Tilray will fare when they report Canadian medical-cannabis sales. However, Canopy’s speculation that some patients bought recreational pot instead of obtaining medical cannabis could translate to flat or declining medical-cannabis sales for other marijuana producers.

It’s really early for international market opportunities

Both Aurora Cannabis and Canopy Growth talked about the tremendous opportunity in international marijuana markets. However, relatively small international sales showed just how early it is for many of these markets.

Only 6% of Aurora’s total cannabis revenue stemmed from international markets, primarily Germany, and the company reported that European cannabis sales increased only 1.8% from the previous quarter.

Canopy Growth had stronger international sales growth, but it still only made up 15% of the company’s medical cannabis sales and a little over 3% of total net revenue.

Tilray could outperform both Aurora and Canopy on the international front. In September 2018, Tilray became the first Canadian marijuana producer to export both cannabis oil and cannabis flower products to Germany. For the most part, though, you can expect that international markets remain a big opportunity for marijuana growers but a small percentage of their current revenue.

The big picture

The latest quarterly updates appear to bode well for other Canadian marijuana stocks. But a snapshot of only one quarter doesn’t provide a complete big-picture view for the industry.

Both Aurora and Canopy expect higher margins later in 2019 and eagerly anticipate the ability to launch new products later this year in Canada, including cannabis edibles and beverages. Aurora and Canopy are also optimistic about the potential to enter the U.S. market in the not-too-distant future.

These encouraging prospects should also apply to other marijuana stocks, and the global market will continue to expand over the long run. As the old saying goes, a rising tide lifts all boats.

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