Beyond the Bong
3 Stocks to Watch After Aurora’s Monster Rally
We’re in uncharted territory.
In the past, we’ve battled our way back from corrections, bear markets and financial collapses.
We’ve gone toe-to-toe with economic “black swans” that have wiped out trillions of dollars.
But this is the first time many industries have faced a global pandemic. Most of them weren’t around for the Spanish flu of 1918.
So for some nascent industries, this will be their first recession.
One of those is cannabis.
But one company recenty rebounded. And it’s leading the charge for others in the sector to come back stronger.
Back From the Brink
Over the past couple of months, we’ve heard a lot of celebrating (and some words of caution) about the rapid rise from the lows we saw in March.
I’ve written about how the tech stock rally is real and here to stay. But what we haven’t really cheered is the rebound in pot stocks!
In fact, since March 23, the Horizons Marijuana Life Sciences Index ETF (OTC: HMLSF) has outperformed the Dow Jones Industrial Average and the S&P 500…
And on Friday, the sector got a major updraft from one of the industry’s biggest plays.
Canadian licensed producer Aurora Cannabis (NYSE: ACB) has made headlines in recent months, but for all the wrong reasons. Company CEO Terry Booth was pushed out… CCO Cam Battley walked away… And the company’s coveted listing on a major U.S. exchange was in jeopardy as shares fell below $1.
But the naysayers have been quieted after its most recent earnings report.
Aurora posted that third quarter sales increased 18% sequentially from the second quarter to $55.3 million.
And looking deeper inside the numbers, we saw that adult-use sales enjoyed a 24% sequential increase to $29.42 million. That’s because Aurora launched its value brand, Daily Special, as well as had a full quarter of Cannabis 2.0 products.
And even better, Aurora’s cost to produce a gram fell from CA$0.624 to CA$0.603.
This helped the Canadian producer reduce its cash use by 43% to $109.61 million. That was far better than the $141.8 million cash burn Wall Street was anticipating.
This sparked new optimism for a recovery… And shares of Aurora skyrocketed more than 60% on the beat.
Now, despite the meteoric rise on Friday, shares are down nearly 60% in 2020. And remember, we had a 1-for-12 reverse stock split on May 11 to avoid a potential delisting.
Going forward, Aurora said it won’t be focused on hitting revenue targets. Instead, it’s looking to gain market share where it can.
The Next $100 Million Highfliers?
With Aurora back on its feet, where should investors be looking next?
Well, we’ve got some key earnings reports this week.
And there are three pot stocks investors should definitely watch. Because some of these will report sales more than twice those of Aurora.
The U.S. cannabis market is roughly 10 times the size of Canada’s. And even though cannabis is still illegal here at the federal level, companies are able to tap individual state markets that are equal in size or larger than Canada’s.
And this leads to much higher sales figures, as you’ll see.
First up, Curaleaf Holdings (OTC: CURLF) will report first quarter earnings after the closing bell tonight.
The U.S. multistate operator (MSO) has 54 dispensaries in 17 states. It stated back in March that its business wasn’t being upended by COVID-19.
Last week, fellow MSO Green Thumb Industries (OTC: GTBIF) became the first American cannabis company to post $100 million in quarterly revenue. Curaleaf could be the second.
Expectations are for the MSO to post a 179% increase in revenue to $98.4 million. It wouldn’t take much to cross the $100 million mark.
Next up, Trulieve Cannabis (OTC: TCNNF) will report first quarter results on Wednesday before the opening bell.
This MSO didn’t try to expand its footprint at all costs like so many other cannabis companies did. Instead, Trulieve zeroed in on one large market: Florida.
In fact, 47 of the MSO’s 49 dispensaries are located in the state. And that’s paying off.
Wall Street is expecting 115% revenue growth to $90.86 million. Even better, Trulieve is anticipated to post earnings per share of $0.11.
Profits are hard to come by in cannabis, but Trulieve continues to deliver.
And finally, we have Harvest Health & Recreation (OTC: HRVSF) also reporting on Wednesday after the closing bell.
The MSO ended 2019 with 31 dispensaries in six states. The company originally planned to have one of the largest geographic footprints for an American cannabis company through extensive acquisitions. But some of those fell apart.
Nonetheless, analysts are looking for a 52.9% increase in revenue to $43 million, with a shrinking loss per share of $0.05.
These three stocks – like the entire cannabis sector – rallied on Friday thanks to Aurora’s big win.
Marijuana dispensaries – similar to beer, spirits and wine stores – were recognized as “essential businesses” during the nationwide shutdowns. But since we’re only two months into the economic slowdown, it’s far too early to slap cannabis with the “recession-proof” badge.
But like Green Thumb, these MSOs will shed light on how America’s marijuana markets are faring during the COVID-19 pandemic.
If the news is rosy – and we see a ton of green – we could be in store for another round of shares blazing higher.
Here’s to high returns,
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