Beyond the Bong

Earnings Season Rocks North American Marijuana Market

Summer is coming to an end. The colder seasons are approaching. And if you enjoy downhill skiing, the three-month chart of the North American Marijuana Index probably looks like a lot fun…

Chart - The North American Marijuana Index

But for pot stock investors, this isn’t the type of slope we want to see.

The index has fallen 9.7% so far in the month of August. But since May 23, it’s down 28.3%.

The sector has been rocked by scandal, then kicked while it was down by a series of earnings misses from Canadian producers in recent weeks.

But there’s another specter besides earnings haunting the cannabis sector…

Fed Up With the Feds?

The American marijuana industry can’t shake the looming shadow of the feds.

Companies are suffering from the feds’ inaction. And investors are selling off over the possibility of increased regulation.

First and foremost, all of the industry merger and acquisition activity for much of the past year has been trapped in the purgatory of antitrust review.

This is why everyone’s reporting “pro forma” revenue.

We’re all waiting for the Department of Justice to approve a merger… any merger at this point.

Second, we’re waiting on the Food and Drug Administration’s regulatory framework for CBD.

Lastly, there’s the FBI.

In its August 15 podcast, FBI This Week (yes, even the G-men have their own podcast nowadays), FBI officials announced they’re looking for tips on any marijuana industry corruption.

In particular, the focus is on western states, where licensing is decentralized. For years, allegations have circulated in California. But there are also murmurs from Arkansas to Michigan.

Pot stocks were rattled by the news… particularly after the headline-grabbing missteps we saw from Canadian producers like CannTrust Holdings (NYSE: CTST) in recent weeks.

“Oops… I Did It Again!”

In the new green rush, some of the wording in legislation has been hazy. Especially when it comes to everyone’s favorite new industrial crop: hemp.

North Carolina didn’t want to make the same mistake Ohio and others have. So the state banned “smokable hemp.”

After hours of debate, the state House of Representatives passed the North Carolina Farm Act. The bill now moves to North Carolina’s Senate with the revised definition of hemp – which is legal – to exclude smokable hemp.

The idea is that this will prevent the de facto legalization of cannabis in the state, as has happened in Ohio and Texas.

The High Five

Below are this week’s High Five, where – each Monday – I cover the five pot stocks I believe will make major moves – up or down – in the week ahead.

We’re in the heart of cannabis earnings season. And American multistate operators (MSOs) are on deck. Here are the ones to watch this week.

1) iAnthus Capital Holdings (OTC: ITHUF) will release second quarter results before the opening bell on Wednesday.

In the first quarter, revenue skyrocketed 384% to $9.6 million. Pro forma revenue was $18.5 million.

iAnthus’ net loss expanded to $18.3 million. Despite this, shares moved 3.35% higher.

The MSO announced $50 million in financing to support its growth. And it’s opening three new dispensaries in Florida, with plans to continue its Sunshine State retail expansion into 2020.

2) Curaleaf Holdings (OTC: CURLF) has changed the date of its second quarter earnings release to Tuesday after the closing bell.

In the first quarter, revenue surged 288% to $35.25 million. Pro forma revenue was $75.1 million. But Curaleaf’s net income loss expanded from $2.3 million to $10.2 million. Because of that, shares slipped more than 8% on the report.

It currently operates 48 dispensaries with 13 cultivation sites and 12 processing facilities in 12 states.

The American cannabis major recently received Depository Trust Company eligibility. This is promising for shareholders as it has positive impacts on liquidity and share demand.

Of course, Curaleaf has the largest acquisition in U.S. history waiting to be approved. So besides strong earnings, investors are really waiting for some positive news from the feds.

3) Green Thumb Industries (OTC: GTBIF) will report second quarter earnings after the closing bell on Wednesday.

In the first quarter, revenue grew 155% to a record $27.9 million. But its net loss grew from $3.3 million in the fourth quarter to $9.7 million.

Despite the widening loss, shares jumped more than 6% on its first quarter release.

Green Thumb just opened its fifth dispensary in Florida, as well as its 28th in the U.S.

4) Slang Worldwide (OTC: SLGWF) will report second quarter results on Tuesday after the market closes.

In the first quarter, revenue came in at CA$4 million. But, not to sound like a broken record, its net loss grew to CA$16.36 million. Shares slipped 6% on the report.

5) Vireo Health (OTC: VREOF) will report second quarter results on Thursday before the market opens.

In the first quarter, revenue leapt 57% to $5.78 million as its net loss per share grew from $0.04 to $0.06. Shares ticked 1.5% higher on the news.

Recently, the cannabis company was granted a license to operate a medical marijuana facility in Ohio.

As always, we like to compare the performance of our High Five with the benchmark Horizons Marijuana Life Sciences Index ETF (OTC: HMLSF).

This week, I decided to see how these companies have done over the past three months – essentially since their last earnings reports.

No surprise, the picture isn’t that comforting…

Chart - The High Five

None of this week’s High Five have outperformed the marijuana ETF during that stretch. Though the two worst performers are Slang and Vireo, which have lost more than half of their value.

Investors are getting torched by the U.S.-China trade spat. Since the start of August, the Dow Jones Industrial Average has shed more than 4%. And pot stocks haven’t had it any easier.

But despite the volatile month for the broader markets – and an even more volatile one for cannabis – there is good news out there. It’s just getting buried in the lead.

We have to hold steady and stay strong. Keep our eyes on the horizon.

There are positive catalysts approaching, namely the Canadian legalization of infused products. And hopefully, we’ll see that downhill slope in share prices reverse course soon… before the wreckage gets too severe.

If you have a pot stock in mind that you’d like me to discuss here, leave a comment below.

Here’s to high returns,

Matthew