Supreme Cannabis (OTCMKTS:SPRWF), a small company by market capitalization, has been catching investors’ attention. The company has good revenue growth, a strong liquidity position, and a solid leadership team. The company’s third-quarter results were good. In an interview with Marijuana Business Daily, the company’s CEO discussed the strategies to grow in the future and hit profitability. However, analysts’ forecasts for the upcoming quarter don’t look very promising.
Supreme Cannabis’s Q3 results were mixed
The company’s third-quarter revenue was 9.7 million Canadian dollars, which was slightly lower than its revenue of 9.9 million Canadian dollars in the third quarter of 2019. The revenue missed analysts’ estimate of 11.5 million Canadian dollars. Sequentially, the revenue was higher than the second-quarter revenue of 9.0 million Canadian dollars. The company reported an adjusted EBITDA loss of 11.6 million Canadian dollars compared to a loss of 1.5 million Canadian dollars in the third quarter of 2019. The losses were higher due to one‐time restructuring costs of $2.1 million in the quarter.
However, Supreme Cannabis saw its recreational cannabis sales revenue grow by 245% YoY (year-over-year) to 5.7 million Canadian dollars. The recreational average selling price declined due to new cannabis products at lower prices. The company’s wholesale revenue increased in the quarter due to importing medical cannabis to Israel.
Aurora Cannabis (NYSE:ACB) reported a 16% YoY revenue growth to 75.5 million Canadian dollars in the third quarter. Meanwhile, Canopy Growth (NYSE:CGC) had a 15% YoY revenue growth to 107.9 million Canadian dollars in its fourth quarter. Neither company reported a positive EBITDA. Aurora Cannabis’s EBITDA losses were at 50.8 million Canadian dollars. Canopy Growth recorded a loss of 102 million Canadian dollars in its respective quarter.
What did management say?
In a recent interview with Marijuana Business Daily, Beena Goldenberg discussed Supreme Cannabis’s strategy to drive growth. Goldenberg is the company’s new CEO and president. Formerly, she was the CEO of Hain-Celestial Canada. She became Supreme Cannabis’s CEO on April 27. Goldenberg said, “Rigorous executive discipline, a more thoughtful approach to mergers and acquisitions and targeted product innovation are important factors for corporate success in the cannabis space.”
She thinks that “disciplined approaches to demand planning, category management, and product innovation” will be the most effective way to achieve success in the cannabis space. We’ll have to wait and see if Goldenburg helps turnaround the company. A good leader is important for any company. For example, under Irwin Simon’s leadership, Aphria (NYSE:APHA) managed to achieve positive profitability.
The company ended the third quarter with a strong liquidity position. Supreme Cannabis had a cash balance of 23.1 million Canadian dollars.
Analysts’ view on Supreme Cannabis
Analysts expect Supreme Cannabis’s fourth-quarter revenue to decline by 45.8% to 10.2 million Canadian dollars. The fiscal revenue could be around 40.8 million Canadian dollars. Analysts expect the company to report an EBITDA loss of 3.0 million Canadian dollars. For the fiscal year, the company could report an EBITDA loss of 30.9 million Canadian dollars.
Meanwhile, analysts expect Aurora Cannabis’s fourth-quarter revenue to decline by 22.1% to 77.0 million Canadian dollars. The company could also report an EBITDA loss of 18.4 million Canadian dollars.
Analysts are bearish on Supreme Cannabis stock after its third-quarter results. Canaccord Genuity cut the target price to 0.50 Canadian dollars from 1 Canadian dollar. Meanwhile, CIBC cut the target price to 0.35 Canadian dollars from 0.5 Canadian dollars.
Among the six analysts that cover the stock, four recommend a “hold,” one recommends a “strong-buy,” and one recommends a “buy.” The average target price for the stock is 0.41 Canadian dollars, which represents an upside potential of 38% from its last closing price. The stock closed higher at 3.5% and 0.295 Canadian dollars on Tuesday.
In June, Supreme Cannabis stock has declined by 12.0%, while Aphria has fallen by 0.23%. Aurora Cannabis has declined by 3.6% and Canopy Growth has gained 4.6%, respectively.