Jefferies analyst Owen Bennett trimmed revenue expectations for four major cannabis names from the U.S. and Canada, but kept his ratings intact on the heels of quarterly updates from Curaleaf Holdings Inc., Trulieve Cannabis Corp., Cronos Group Inc. and Canopy Growth Corp.
Both Trulieve and Curaleaf, the two U.S. companies, said they were seeing more price pressure in their wholesale businesses amid competition and oversupply, with their retail operations holding up comparatively well.
Citing industry pressures from oversupply in some markets and the impact of higher gasoline and food prices on cannabis sales, Bennett said his reduced expectations for revenue reflect the realities of the economic environment in 2022.
Bennett reiterated buy ratings on Curaleaf
and kept his hold ratings on Canadian companies Cronos
and Canopy Growth
“Scale [is] providing an advantage in this current market,” Bennett said in his note on Curaleaf. “We were encouraged to see another multi-state operator (MSO) effectively navigate growing industry pressures.”
Curaleaf’s longer-term plans to launch a consumer packaged goods unit and its focus on data analytics and market intelligence also drew praise from Bennett.
Bennett cut his 2022 revenue estimate for Curaleaf to $1.41 billion from $1.45 billion. His revenue estimate is a bit more bullish than the analyst consensus estimate of $1.39 billion in a survey by FactSet.
For Trulieve, Bennett lowered his 2022 revenue projection to $1.26 billion from $1.33 billion but kept it below the consensus of $1.28 billion.
He cited lower industry sales and Truelive’s softer share in the Pennsylvania medical market and a lack of support from a boost in own-store sales.
Trulieve remains challenged by its reliance on fewer markets such as its major presence in Florida, he said.
“We were encouraged by moves to expand nationally, notably via the Harvest deal, and then also actions to expand its recreational brand offerings,” Bennett said. “What we also didn’t talk about is how limited breadth (relative to many peers) could also impact near-term. We are arguably seeing that now.”
Bennett reduced his fiscal 2023 revenue estimate for Canopy Growth to C$477 million from C$525.5 million, below the consensus view of C$495.9 million.
While Canopy Growth appears better-equipped than other Canadian companies to enter the U.S. market upon federal legalization, the company faces headwinds in its current business, he said.
“Canopy operational weakness continued in 1Q, with little improvement over 4Q, and the company taking another significant impairment,” Bennett said. “A couple of bright spots were CBD and BioSteel [drink] sales, while selling, general and administrative expenses (SG&A) also saw a nice reduction.”
Bennett tempered his revenue outlook for Cronos Group to $94.9 million from his earlier view of $115.6 million. The latest number is below the consensus estimate of $103.8 million, according to FactSet estimates.
“Ever since Canada legalization, Cronos delivery has been very underwhelming, and it was more of the same again in 2Q, when after signs of improvement in 1Q, many metrics saw a reversal again,” Bennett said.
Bennett kept his neutral rating on Cronos less for the company’s performance and more for its ties to tobacco giant Altria Group Inc.
an investor in the company.
“The thesis on Cronos has nothing to do with its current operations anyway,” Bennett said. “It is all about its strategic partner in MO, its $1 billion in cash (from the MO investment), and then its U.S. optionality provided by this cash and its 10.5% stake in private multi-state operator, PharmaCann LLC,” Bennett said.
Shares of all four cannabis names have been weak in 2022.
Cronos Group shares are down 21.7% in 2022; Canopy Growth shares have lost 62.4% of their value; Curaleaf is down by 33.4% and Trulieve is off by 50.4%.