Marijuana investors have another opportunity to review the progress in the Canadian pot market as two key players release quarterly results and management commentaries next week.
The first to report is an integrated platform strategist targeting both the medical and adult-use market, while the second to report is a pure play consumer cannabis retailer with a recently beefed up balance sheet.
Let’s look at the two right away.
The first company to trigger the massive sell-off on pot stocks, which wiped billions off industry tickers in October, HEXO (TSX:HEXO)(NYSE:HEXO) is set to release its fiscal first-quarter 2020 results before market open on Monday, December 16.
The company exacerbated an already negative sentiment on marijuana stocks in October by cutting its fiscal fourth-quarter 2019 revenue guidance in half, retracting its $400 million revenue guidance for fiscal 2020 and by firing 200 employees and suspending production on two facilities due to slow demand growth, potentially massive sales returns, and declining prices
Could the company’s upcoming report cause another market rout?
I hope not, as management gave a conservative revenue guidance for the quarter ended in October for $14 to $18 million, which reflected provisions for product returns and retroactive adjustments on inventory held by provinces after the company goes into low-price competition mode.
It would be important to check how the company’s new brand, Original Stash, which aims to put underground market suppliers out of business will fare against the “dark world forces,” and I hope management will comment extensively on this new low-priced product line’s margins and initial uptake on Monday.
Fire & Flower
A strong growth focused retailer of adult-use marijuana, Fire & Flower Holdings (TSX:FAF) is expected to report its third quarter results for the 13 weeks that ended on November 2, 2019 on Tuesday, December 17, before market open.
The company acquired eight new retail stores from Cannabis Cowboy in October for a consideration of $5.65 million and was expected to obtain licenses and open their doors to the public over the subsequent weeks. I’m not so sure if management managed to open many of the new stores before quarter-end.
That said, FAF had opened seven new retail outlets by October (after the end of the second quarter) and we can reasonably expect to see some double-digit sequential growth in quarterly total revenue in the upcoming instalment.
Gross margins slightly declined sequentially during the fiscal second quarter to 36.5% from 38.5% in the first quarter on 17% more sales, and they could decline further if pricing pressures persist.
That said, the ambitious retailer has grown significantly over the past few months to report 38 operating retail stores as of December, up from 22 outlets by midyear this year. The company is on course to reach its target for 45 retail outlets by February 2020 and the vision to achieve a 135-store footprint by fiscal year 2021 could make it one of the biggest pot retail chains in the world.
Coupled with a recent $380 million strategic investment from Alimentation Couche-Tard, the company’s balance sheet is intact and its growth engines are well oiled. I hope the overall market demand growth won’t disappoint.
Let’s see how things shape up for this emerging big player on Tuesday as it battles with close competitor Meta Growth (formerly National Access Cannabis Corp) for retail market domination.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Brian Paradza has no position in any of the stocks mentioned. The Motley Fool recommends ALIMENTATION COUCHE-TARD INC, HEXO.