As of December 24, Supreme Cannabis (FIRE) was trading at 0.66 Canadian dollars. The company has lost 50% of its stock value this year. Also, the company was trading at a discount of 72% from its 52-week high of 2.36 Canadian dollars, and 11.9% higher from its 52-week low of 0.59 Canadian dollars. FIRE has missed analysts’ revenue estimates in the last three quarters. Also, it reported a net loss of 16.53 million Canadian dollars in its last quarter, significantly higher than analysts’ expectation of a loss of 0.58 million Canadian dollars. The higher net losses in the last quarter appear to have caused the company’s stock price to fall. Also, the weakness in the cannabis sector could have contributed to a fall in the company’s stock price. Having discussed Supreme Cannabis’s stock performance, let’s look at management’s guidance and analysts’ expectations.
After reporting its first-quarter earnings of fiscal 2020 on November 14, FIRE’s management had reiterated its guidance for fiscal 2020. The management expects the company’s fiscal 2020 revenue to come in the range of 150 million to 180 million Canadian dollars. They are expecting the company to report positive EBITDA later this year.
Analysts’ expectations for FIRE
For fiscal 2020, analysts expect Supreme Cannabis to report revenue of 92.9 million Canadian dollars. This is a year-over-year rise of 122.1%. For fiscal 2021, they expect the company’s revenue to grow by 91.4% to 177.8 million Canadian dollars.
On December 5, FIRE leased a 107,000-square-foot facility in Kitchener, Ontario. The company has completed the construction of the first phase of the facility. It has now applied for a license from Health Canada. The company expects the facility to become its manufacturing, processing, and packaging center. On December 18, FIRE expanded its 7ACRES products to Quebec and Newfoundland and Labrador. With this expansion, the company will extend the distribution of its products to all ten provinces of Canada.
Last quarter, FIRE completed the construction of the Center Core facility and also commissioned an automated bottling line. The company is expecting to commission the second and third bottling lines later this fiscal year. Also, the company is planning to completely move its 7ACRES brand from a wholesale business to a high-margin consumer brand by the end of the third quarter of fiscal 2020. We expect all these initiatives to drive the company’s revenue. Also, the launch of new derivative products later this fiscal year could improve the company’s margins.
Analysts are expecting FIRE to report positive EBITDA from the third quarter of fiscal 2020. However, they expect the company’s fiscal 2020 EBITDA to be negative at 0.20 million Canadian dollars. For fiscal 2021, they are projecting the company to report EBITDA of 49.1 million Canadian dollars.
Analysts are bullish on Supreme Cannabis. Of the eight analysts following the stock, six are in favor of a “buy” rating, while one analyst recommends a “hold,” and one recommends a “sell” rating. As of December 24, analysts’ consensus price targets stood at 1.23 Canadian dollars with a 12-month return potential of 85.6%. For more on analysts’ opinions, read “Supreme Cannabis: Lower Target Price after Q1 Earnings.”
Our take on FIRE
Despite near-term challenges such as pricing pressure and excessive supply, we expect FIRE to have bottomed out at these levels. We see the introduction of new derivative products, and the expansion of its production facilities, driving the company’s revenue and margins. Also, we expect the Ontario government’s decision to open up its retail cannabis market to contribute to the company’s revenue growth. Let’s look at the stock performance of its peers.
Year-to-date stock performance
This year, Supreme Cannabis has underperformed its peers and cannabis ETFs. Year-to-date, its peers, OrganiGram Holdings (OGI), Green Thumb Industries (GTII), and Charlotte’s Web Holdings (CWEB), have fallen by 31.8%, 0.1%, and 32.8%, respectively. The cannabis ETF, Horizons Marijuana Life Sciences Index ETF (HMMJ), has declined by 38.7% during the same period. For more cannabis updates and news, visit 420 Investor Daily.