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Buy Marijuana Stocks, Tilray & Aurora Cannabis, Before Earnings?

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The marijuana industry has transformed from a widespread illegal market into a booming multibillion-dollar legal industry, with companies from Scott’s Miracle Grow (SMG - Free Report) to GW Pharmaceuticals (GWPH - Free Report) set to make money of the legalization of cannabis. With that said, the legal pot industry is still in the early stages, so let’s see if investors should consider buying some pure-play marijuana stocks heading into earnings.

Quick Overview

Cannabis has been legalized in some form in 33 states plus D.C. and it is completely legal in Canada for recreational and medicinal use. The industry is set to skyrocket from $9 billion in 2017 to an estimated $32 billion by 2020. As we mentioned, huge public companies such as Scott’s Miracle Grow, Molson Coors (TAP - Free Report) , GW, Altria (MO - Free Report) , and Corona brewer Constellation Brands (STZ - Free Report) have all made bets on the future of legalized marijuana in some form or another.

For instance, Constellation has invested roughly $4 billion into Canadian marijuana grower Canopy Growth (CGC - Free Report) . Meanwhile, GW has seen continued success its cannabis-based epilepsy drug Epidiolex in phase 3 clinical trials. Epidiolex is already approved by the US FDA for two rare forms of epilepsy, but is still pending approval for a larger set of seizure disorders that could represent a huge windfall.

On top of that, marijuana REIT, Innovative Industrial Properties (IIPR - Free Report) , reported better than expected results earlier this week. The company now controls more than 1.3 million square feet of growing facilities. Meanwhile, shares of Canadian marijuana producer Cronos (CRON - Free Report) have fallen over 20% in the last month in the lead up to its earnings, which were released on Thursday, May 9, based mostly on fears that the market for recreational sales of cannabis in Canada will continue to disappoint, as regulatory roadblocks constrain supply.

Cronos topped our Zacks Consensus Estimate for adjusted earnings and saw its quarterly revenue soar 120%. Yet, shares of CRON fell over 8% through early afternoon trading. Therefore, some investors might have hoped for a larger climb as pot wasn’t fully legal in Canada in the year-ago quarter. The Toronto-based firm’s revenue did pop 15% quarter-over-quarter.

As we touched on already, we are still in the very early days of the marijuana industry and stocks have fluctuated somewhat wildly. So, let’s take a look at what to expect from Tilray and Aurora Cannabis next week to see if investors might want to dip their toes into the market and buy some pot stocks.

 

 

Tilray (TLRY - Free Report)

Tilray, which reports its Q1 fiscal 2019 financial results on Tuesday, May 14, is essentially a marijuana grower. The British Columbia-based firm researches, cultivates, produces, and distributes cannabis and cannabinoids to twelve countries. Shares of TLRY are up over 100% since the company went public last summer, but are down 35% this year and are currently trading for roughly $46 a share.

Looking ahead, the company is projected to report revenue of $20.93 million, based on our current Zacks estimates. Tilray is also expected to report an adjusted quarterly loss of $0.25 per share and has seen its earnings revisions trend in the wrong direction. The company has also missed bottom-line estimates by over 90% in two out of the last three quarters.

With that said, Tilray’s full-year revenue is projected to skyrocket 365% to $200.9 million. Despite the projected top-line growth, its fiscal 2019 earnings are expected to fall by 56%.

Aurora Cannabis (ACB - Free Report)

Like its grower peer, Aurora Cannabis is set to report its third-quarter fiscal 2019 results after the market closes on Tuesday, May 14. The Edmonton, Alberta, Canada-headquartered firm hopes to benefit from the relatively quick expansion of the legalized recreational marijuana business. ACB stock is down roughly 22% since Aurora went public. Yet, shares of Aurora have soared 70% in 2019 to rest at around $8.45 per share.

The company’s quarterly earnings are projected to jump 25% from a loss of $0.04 per share in the prior-year quarter to $0.03 a share. More impressively, the company’s revenue is projected to skyrocket roughly 300% to $50.9 million, fueled by Canadian legalization. Peeking ahead, the company’s adjusted full-year EPS figure is projected to tumble 250% on 360% revenue expansion.

Bottom Line

In the end, investors should remember that these marijuana pure plays aren’t widely covered by analysts just yet, which can cause big quarterly beats and misses. Pot stocks have also seen their prices go on a roller coaster rides as demand often can’t match supply. Therefore, most marijuana stocks should be considered home run-type picks that could go boom or bust over the next several years—which doesn’t mean you shouldn’t take a few swings.

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