Cannabis Analyst: March Earning Season May Not Push Canadian LPs, But There Are Other Catalysts

The global pandemic and following lockdowns impacted almost every sector of the economy. And the Canadian cannabis industry was no exception.

Adult-use cannabis retail sales in the country experienced sequential growth of barely 4% in the first quarter of 2021, compared to the 12% surge seen in Q4 2020, and 31% in Q3 2020. This development, however, could only be “partly explained by the COVID lockdown,” according to Cantor Fitzgerald’s analyst Pablo Zuanic.  

The Thesis

With the Q1 earnings season approaching, some may expect it to have a positive influence on cannabis operators. But the analyst doubts it. In fact, he notes, the Canadian Marijuana Index has fallen by 50% since its February peak. During the same period, the U.S. Marijuana Index dropped by 33%, while the AdvisorShares Pure US Cannabis ETF MSOS only lost 23% of its value.

The drop in the Canadian Index can only partly be explained by the volatility around Sundial Growers SNDL, which dropped by 66% since February, and Tilray Inc. TLRY, which fell 69%, as these two stocks only offer U.S. listings, but not Canadian listings, explained the analyst.

Among other contributors to the pullback, the analyst highlighted “Question marks about the timing of deregulation in the US, profit taking, and concerns about the cal 1Q earnings season.”

But there are other factors to feel bullish on the Canadian market outlook. These include frequent mergers and acquisitions; news on overseas markets that are about to legalize cannabis, such as Mexico; and better retail trends after the recent setback due to the pandemic-caused lockdowns, noted Zuanic.

“The larger companies are true plays on the global cannabis industry.”

The analyst issued an ‘Overweight’ rating on Aphria APHA, Organigram OGI and Auxly Cannabis Group CBWTF, maintaining estimates and ratings for the other companies in the group.

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