Could Acreage Holdings’ Q1 Earnings Boost Its Stock?

Acreage Holdings (OTCMKTS:ACRGF) will likely report its results for the first quarter of fiscal 2020 on Friday before the market opens. US cannabis companies saw drastic revenue growth in their respective first quarters due to rising cannabis sales amid the pandemic. Analysts expect the revenue to rise for Acreage Holdings in the first quarter. However, the company might report a negative EBITDA again. Will Acreage Holdings’ first-quarter results be a surprise and boost its stock price? The stock has fallen 60.6% year-to-date, while the SPDR S&P 500 ETF has lost 5.5%.

What analysts expect from Acreage Holdings

Acreage Holdings reported good revenue growth of 316% in the fourth quarter even though it missed the estimates. Analysts expect Acreage Holdings’ revenue to rise by 36.4% YoY (year-over-year) to $45.15 million. The revenue could keep increasing. Analysts expect the revenue to be around $47.0 million in the second quarter. Meanwhile, they expect the revenue to be around $58.5 million in the third quarter and $71.0 million in the fourth quarter. For fiscal 2020, the revenue could be around $228.1 million.

Cresco Labs (OTCMKTS:CRLBF), Green Thumb Industries (OTCMKTS:GTBIF), and Curaleaf Holdings (OTCMKTS:CURLF) reported YoY revenue growth of 215%, 268%, and 174% in the first quarter.

Despite a revenue increase, analysts expect another quarter of EBITDA loss. The loss could be around $15.7 million in the first quarter compared to a loss of $6.9 million in the same quarter last year. The losses could get lower over the coming quarters. Meanwhile, the losses could be around $10.7 million in the second quarter, $4.4 million in the third quarter, and $2.9 million in the fourth quarter. Analysts expect the company to hit profitability by the first quarter of fiscal 2021—a profit of $16.7 million. The gross margin for the first quarter could be around 40.8% compared to 74.7% in the first quarter of fiscal 2019.

Strategies to improve margins and hit profitability

Last month, Acreage Holdings announced that its plans to improve margins and achieve a positive EBITDA for fiscal 2020. The company sold certain non-core assets and other under-performing assets. Acreage Holdings expects to see a pre-tax and non-cash charge of $80 million–$100 million in the first quarter. The charge is related to these changes.

Kevin Murphy, Acreage Holdings’ chairman and CEO, said, “The impact of the COVID-19 pandemic on U.S. cannabis operators has been profound, at a time when the industry was already reeling from decreased access to capital, legislative uncertainty, and the illicit-market vaping crisis that struck our industry by association. Led by a nimble operating team and Board of Directors that has proven its ability time and again to adapt and thrive in challenging times, we are supremely confident our plan will ensure operational profitability and excellence and position us to deliver improved shareholder returns in short order.”

Analysts’ recommendations

Currently, eight analysts cover Acreage Holdings stock. Among the analysts, two recommend a “strong-buy,” four recommend a “buy,” and two recommend a “hold.” The average target price on the stock is $8.8, which is lower than the target price of $12.6 after its earnings for the fourth quarter of fiscal 2019. The current target price depicts a 280% upside potential compared to Acreage Holdings’ last closing price. The stock closed 2.1% lower at $2.3 on Wednesday.

Meanwhile, Cresco Labs, Green Thumb, and Curaleaf declined by 3.3%, 2.9%, and 4.5% on Wednesday. Stay with us to learn how Acreage Holdings performed in the first quarter.