Making the Grade

Cannabis Companies Showing Sequential Revenue Growth… and Those Falling Behind

Investors love sequential revenue growth.

They want to see those gradual step-ups in sales move higher and higher.

And as we all know, share prices ultimately follow good news.

It’s the most basic rule of investor math. If earnings and revenue increase from one quarter to the next, the company’s share price should increase along with them.

Of course, the opposite holds true too. When a company posts a sequential decline in quarterly sales, investors panic and jump ship, driving shares lower.

It’s the ebb and flow of the market.

So, with second quarter earnings season about to get underway and several cannabis companies on deck, it’s a good time to look at quarterly revenue trends.

That’s why today, my team and I decided to look at which pot stocks recently saw the best and worst quarter-over-quarter changes in revenue.

And the difference between the two groups was stark.

The top pot stocks are full of eye-popping sequential gains…

Chart - Top 12 Pot Stocks Ranked by Sequential Revenue Growth

Way out in front is products and services company Tilt Holdings (OTC: SVVTF).

The pot stock reported first quarter revenue of $34.4 million. That represents a nearly 1,100% increase over its fourth quarter.

But this is a young company. And we should see momentum continue to explode higher.

In fact, expectations are for Tilt to report $461 million in revenue this year. That’s significant since its current market cap is less than $100 million.

Next, we have GW Pharmaceuticals (Nasdaq: GWPH), the maker of Epidiolex (the only FDA-approved cannabis-based seizure medication for children with epilepsy).

Revenue grew 490% sequentially in the first quarter to $39.4 million. But this is the start of a big year for the biotech company.

Analysts believe 2019 revenue is going to surge more than 1,245% to $213.82 million.

But those aren’t the only two cannabis firms posting big increases.

U.S. multistate operator iAnthus Capital Holdings (OTC: ITHUF) reported a 384% increase in sequential revenue, followed by National Access Cannabis Corp. (OTC: NACNF) at 328%.

In all, seven pot stocks posted sequential revenue growth of 240% or more. And all 12 companies experienced sequential increases of at least 162%.

Remember, that’s not year-over-year growth. That’s just from one quarter to the next.

Now let’s look at those cannabis companies at the other end of the spectrum…

Chart - Bottom 10 Pot Stocks Ranked by Sequential Revenue Growth

The majority of the 10 worst performers still saw sequential revenue growth. It just so happens their upticks were merely in the single digits.

One of the best of the worst was Tilray (Nasdaq: TLRY), followed by the American CBD producer, CV Sciences (OTC: CVSI).

We know that hemp-derived CBD makers like CV Sciences and Charlotte’s Web Holdings (OTC: CWBHF) are reporting strong revenue numbers. But the sequential increases at this point aren’t as blistering as those of other cannabis producers.

That’s because hemp-derived CBD is a universally legal market. And we’re not seeing huge pops as adult-use or medical sales kick off nationwide or state by state.

But Charlotte’s Web is still expected to see revenue growth of nearly 100% this year. And CV Sciences is projected to see sales surge more than 65%.

Besides Tilray, the other big-name Canadian producers on this list – CannTrust Holdings (NYSE: CTST), Hexo Corp. (NYSE: HEXO) and Canopy Growth Corp. (NYSE: CGC) – aren’t posting earth-shattering sequential increases either.

The Canadian companies saw massive jumps in revenue when legalization began nationwide last October. But maintaining that momentum has been difficult. And growth has been constrained by lack of supply.

In yesterday’s Beyond the Bong I talked about some of the issues plaguing Canopy Growth, which led to CEO Bruce Linton’s ousting last week.

But bad news loves company. Yesterday, CannTrust shares were hammered as regulators came down on the company for growing cannabis in “unlicensed operations.”

As it tried to work around the shortage, CannTrust is now expected to suffer an even greater one.

In the first quarter, the company reported $12.9 million in revenue. In the second quarter, revenue was expected to be $14.77 million. That would be nearly 180% year-over-year growth. But it represents a sequential increase of merely 14.5%. So we’ll have to see how this latest news impacts the company going forward.

It also demonstrates how the Canadian producers are in a slower growth phase at the moment. At least until new catalysts, like edibles, are introduced later this year.

The last quarter has been tough for cannabis investors. Even though we’re seeing enormous sequential increases in revenue, it sometimes hasn’t been enough.

But here’s the deal… Share prices ultimately follow revenue and earnings. We’ve had some bumps in the road. But I expect momentum to shift to full throttle soon.

As second quarter earnings are released, we’ll be looking for those sequential increases – big or small.

Here’s to high returns,

Matthew