On the back of what looks like a Biden/Harris win and a feeling of imminent legalization, Cannabis stocks were up over 6% yesterday, with the Canadian LPs up double digits. ACB and TLRY were up 40% and 30%, respectively. The move is premature but will likely continue until proven wrong, but nothing will change for many of these companies for years. Many companies still need to report 3Q20 earnings. As we heard from CRON yesterday, they had to take "strategic price reductions on various adult-use cannabis products in certain Canadian provinces in the third quarter of 2020," which is putting pressure on margins. The Canadian cannabis market is in transition and will take another or more year to sort itself out. In the meantime, the Federal Legalization of the US Cannabis industry is still years away, so the US cannabis industry will not save many of these struggling companies. That does not mean we don't get movement on other pieces of legislation to benefit the US cannabis industry, not Federal Legalization. The moat many US companies enjoy will not be going away any time soon.
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Cronos’s posts a slight top-line beat in Q3
CRON is on the Hedgeye Cannabis LONG Bias List.
In Q3, Cronos reported net revenues of $11.4 million versus FactSet Consensus $11 million, representing growth of 15% QoQ and 97% YoY. The net revenue growth was primarily driven by continued growth in the adult-use Canadian cannabis market, the inclusion of Lord Jones’ sales, and growth in the Israeli medical cannabis market. Operating losses were worse than consensus estimates at -$41.2 million versus FactSet Consensus -$25.1 million, widening sequentially by -18% QoQ and -34% YoY. Operating losses were driven by increased share-based payments related to acquiring Lord Jones, increased G&A, and higher sales and marketing costs related to brand development. The Rest of the World segment grew 90% YoY to $9.7 million – a significantly stronger growth rate than Q2’s 0.73% YoY in that segment. The company ended the quarter with approximately $1.3 billion in cash and short-term investments, holding relatively flat from Q2.
Canopy Growth launches first CBD-infused beverage line in Canada (CGC, STZ)
CGC is on the Hedgeye Cannabis SHORT Bias List.
Canopy Growth announced the launch of Quatreau, a new line of premium CBD-infused beverages. The naturally flavored sparkling waters are Canopy’s first CBD-infused drinks, with both CBD-only and “balanced” (CBD + THC) offerings available in Canada.
Quatreau’s naturally flavored Canadian product line includes four offerings named:
- Quatreau Cucumber + Mint (contains 20 mg of CBD and < 1 mg of THC)
- Quatreau Passion Fruit + Guava (contains 20 mg of CBD and < 1 mg of THC)
- Quatreau Ginger + Lime (contains 2 mg of CBD and 2 mg of THC)
- Quatreau Blueberry + Açai (contains 2 mg of CBD and 2 mg of THC)
Quatreau is an expansion of its cannabis beverage portfolio – earlier this year, Canopy launched THC-infused cannabis beverage brands Tweed, Houseplant, and Deep Space. As of October, Canopy owned 5 of the top 6 SKUs in the beverage category with a 74% market share and had solder over 1.7 million cans of THC-infused RTD beverages.
Aside from Canopy’s portfolio launches, 2020 has seen a ramp in activity around the cannabis-infused beverages space. APHA just announced its acquisition of SweetWater Brewing, attempting to enter the U.S. cannabis market via a company that makes beer which tastes like cannabis strains. HEXO launched Truss cannabis-infused beverages in Canada, which added $2.4 million in sales in its fiscal Q4.
The challenges are significant on both the home front and in the U.S. To date, cannabis consumers don't seem to be taking to beverages as their preferred way to consume THC. In Canada, competition is heating up with cannabis-infused beverages. In the U.S., Canopy will have to continue relying on Acreage to build out beverage facilities on a commercial scale within each state until legislative reforms allow legal interstate transport of cannabis.
Curaleaf closes acquisition of cultivation and processing operations in MA (CURLF)
CURLF is on the Hedgeye Cannabis LONG Bias List.
Curaleaf announced the successful completion of the company's acquisition of Alternative Therapies Group's ("ATG") licensed cultivation and processing operations in Amesbury, Massachusetts, as of November 3, 2020.
With the acquisition of ATG's growth and processing operations, Curaleaf will be adding 53,600 sq. ft. of capacity to its existing 104,000 sq. ft. capacity in Massachusetts. The Amesbury facility is fully built out, and operational – management anticipates that the facility will be immediately accretive to their production capabilities in Massachusetts.
Combined with Curaleaf's current cultivation facility in Webster, MA, the ATG acquisition brings Curaleaf's total cultivation capacity in the state to 157,600 sq. ft. The new operations' integration establishes Curaleaf as the only cannabis provider in Massachusetts approved for two adult-use cultivation licenses, two adult-use processing licenses, and the maximum-permitted three adult-use dispensary licenses. ATG's dispensaries located in Amesbury, Salisbury, Salem have been spun off and continue to operate under the ATG brand in connection with the acquisition.
The wholesale market in MA is especially lucrative, and Cannabis Benchmarks indicates that the state commands some of the nation's highest wholesale flower prices, second only to Illinois.
