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Can ACB’s and CWEB’s Earnings Help Cannabis?

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Nov. 6 2019, Updated 8:28 a.m. ET

The cannabis sector is struggling while the broader equity market is trading close to an all-time high. As of yesterday, the ETFMG Alternative Harvest ETF (MJ) had fallen 21.1% this year. Meanwhile, the S&P 500 had increased by 22.6%. The index closed at 3074.62 points yesterday, close to its all-time high of 3085.20 points.

Expectations of a slowdown in cannabis sales in this year’s second half, vaping-related deaths, and high operating losses appear to have dragged down cannabis stocks. Aurora Cannabis (ACB) and Charlotte’s Web Holdings (CWBHF) (CWEB) are scheduled to report their earnings next week. Could their results bring some relief to the cannabis sector?

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Analysts’ expectations for ACB

Aurora Cannabis is set to report its fiscal 2020 first-quarter earnings on November 11. As of yesterday, ACB stock had fallen 42.1% since the company’s fiscal 2019 fourth-quarter release. In the fourth quarter, the company missed its own and analysts’ revenue estimates.

In fiscal 2020’s first quarter, analysts expect ACB’s revenue to grow 223.7% YoY (year-over-year) to 96.1 million Canadian dollars. However, sequentially, they expect its revenue to fall 2.9% from 98.94 million Canadian dollars.

In fiscal 2019’s fourth quarter, ACB generated revenue of approximately 20 million Canadian dollars from wholesale or bulk cannabis sales. During its earnings call, the company informed investors not to expect the same performance going forward. Therefore, a decline in wholesale cannabis sales could lower the company’s revenue. However, we expect its production facility and medical business expansion to offset some of that decline.

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In fiscal 2020’s first quarter, analysts project Aurora’s EBITDA loss to expand sequentially from 11.7 million Canadian dollars to 18.1 million Canadian dollars. Last year, Aurora beat analysts’ revenue estimate in the second quarter only. The company’s EBITDA were lower than expected in all four quarters.

Analysts’ expectations for CWEB

Charlotte’s Web Holdings is set to report its third-quarter earnings before the market opens on November 13. As of yesterday, CWEB stock had fallen 46.3% since the company reported its second-quarter earnings on August 14. The company missed analysts’ revenue and EPS estimates in the quarter.

In the third quarter, analysts expect Charlotte’s Web’s revenue to rise 84.5% YoY and 30.8% sequentially to $32.72 million. We expect the company’s wider retail presence, new products, and expanded production and process facilities to drive its revenue. In September, the company introduced hemp-derived cannabidiol gummies in 738 Vitamin Shoppe locations across 45 states. By the end of the second quarter, the company had expanded its products to 7,871 stores. And this year, CWEB’s hemp plantation has expanded YoY to 862 acres from 300 acres.

In the third quarter, analysts expect CWEB’s EBITDA to rise 30.5% YoY and 80.7% sequentially to $7.05 million. Charlotte’s Web has missed analysts’ revenue and EBITDA estimates in its last four quarters.

Analysts’ recommendations

Of the 16 analysts following Aurora, 43.8% suggest “buy,” 43.8% suggest “hold,” and 12.5% suggest “sell.” Their average price target of 8.06 Canadian dollars implies a 63.6% 12-month return.

Meanwhile, all eight analysts covering Charlotte’s Web are bullish and suggest “buy.” Their average price target of 31.95 Canadian dollars for CWEB implies a 106.5% 12-month return.

If ACB and CWEB beat analysts’ estimates, their stocks could rise. And as Aurora is a leader in the cannabis space, its strong performance could drive the entire sector upward. For cannabis-related news, check 420 Investor Daily.

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