Making the Grade

Where to Find Treats This Earnings Season

I’m a horror story fan.

I grew up reading The Shining, Geek Love, The Haunting of Hill House and everything by H.P. Lovecraft, Peter Straub, Dan Simmons, Ray Bradbury and the masters of the genre.

That’s why Halloween is one of my favorite holidays.

But beyond ghost stories and gory films, October also tends to be a scary month for investors.

The Crash of 1929 began in October… Black Monday was October 19, 1987… The minicrash of October 1989 was on Friday the 13th…

The markets endured another minicrash on October 27, 1997… October 2007 marked the beginning of the financial crisis…

And let’s not forget, almost exactly one year ago the Dow Jones Industrial Average suffered its third-largest one-day drop in history.

Many times, the scariness begins with earnings. October is the month when third quarter earnings season begins.

So that’s our focus for today’s Making the Grade.

The Great About-Face

Pot stocks have been trapped in a nightmare of their own. The gains we enjoyed the first few months of the year have been eviscerated. Today, all of the marijuana indexes are in the red for 2019.

Next week, Aphria (NYSE: APHA) will mark the bleeding edge of cannabis earnings season.

Roughly two weeks after the Canadian licensed producer reports, we’ll hear from Green Growth Brands (OTC: GGBXF), MedMen Enterprises (OTC: MMNFF) and Hexo Corp. (NYSE: HEXO).

Then, once November hits, earnings will pick up speed.

So what should investors expect?

In preparation of the blitz, I decided to pull together a list of the cannabis companies projected to report the highest revenue this season.

The list shows an abrupt about-face…

Chart - Pot Stocks by Quarterly Revenue

Last quarter, Aphria didn’t crack the top 10 in sales. It was outshone by Aurora Cannabis (NYSE: ACB), Canopy Growth Corp. (NYSE: CGC) and Tilray (Nasdaq: TLRY). Not to mention, a slew of U.S. cannabis companies.

But this quarter, Aphria is expected to be the lead dog out of the gate with roughly $100 million in revenue. Not only is that 1,200% year-over-year growth, but it’s also expected to be more than the $95.2 million Wall Street is forecasting from Canopy.

So Aphria is setting the bar high as the first cannabis major to report.

We also see that Canadian producers are projected to claim three of the top four spots.

The other is forecast to be held by GW Pharmaceuticals (Nasdaq: GWPH), the U.K.-based Epidiolex producer.

Last quarter, GW Pharmaceuticals was the top sales generating pot stock at $72 million. So we can see that everyone is projected to report a significant increase in revenue.

Besides Tilray, the remainder of the top cannabis companies in terms of projected revenue are American multistate operators, along with KushCo Holdings (OTC: KSHB).

That means the majority of the biggest sales generators can be found in the U.S.

Though, as “Cannabis 2.0” legalization gets underway in Canada in the coming months, Canadian producers will continue to separate themselves from the pack.

Trick or Treat?

More than a few truly frightening market events have happened in October.

Some analysts even recommend avoiding the month altogether.

But we can’t.

Cannabis companies have been on a terrifying decline for the past six months. And we’re about to dive headlong into earnings season once again.

Revenue continues to grow at an impressive rate. Now the question is, is it enough to keep shares from sinking further, like a body in Crystal Lake?

Here’s to high returns,