Cannabis Earnings Are Flooding In: Here's An Analyst To Help You Digest Them, Four Companies For The Price Of One

Cantor Fitzgerald’s Pablo Zuanic has had a busy couple of days as a plethora of cannabis companies file their financial reports. He took some time to share his view on the booming if sometimes rocky industry.

Here Are Some Highlights On Four Important Companies

Let’s start with Clever Leaves Holdings CLVR. The producer of pharmaceutical and consumer cannabis brands operating in Canada, Colombia, Germany, Portugal and the U.S. reported revenue of $3.3 million, an 18% decrease compared to $4.0 million in Q3 2021.

Zuanic maintained an Overweight on the stock but lowered the 12-month price target to $3.75 from $4.30 on reduced estimates and sectoral derating.

“In order to better manage working capital and get ready for flower exports from Colombia in 1Q23, the company reduced the harvest there by 89% YoY in 3Q22; while this is sensible, it resulted in much higher company-wide cost per gram ($1.13 in 3Q22 vs. $0.15 in 3Q21),” Zuanic said.

Aleafia Health ALEAF, which reported its Q2 2023 net revenue was CA$10.6 million ($7.9 million), a 10.4% increase compared to CA$9.6 million in the prior year.

“We remain Neutral and reduce our 12-month price target to C$0.08 from C$0.09. We attach our updated model post the release of Sep qtr results. We see value in the Aleafia medical franchise and potentially too in its domestic rec business if recent market share gains can be sustained (and are profitable),” Zuanic said.

“In a consolidating industry, these assets could be attractive to larger players, but the balance sheet and cash burn remain concerns. Hence, our Neutral stance.” 

Zuanic lauded Aleafia for continuing to make inroads in “branded rec, with sales up 14% YoY, but we conclude that the core medical business is functioning within an environment of slowing growth and increased competition, resulting in lower margins." 

Trulieve Cannabis Corp TCNNF, reported revenue of $301 million, an increase of 34% compared to $224 million in the same period of 2021.

Zuanic is pleased with the report and reiterated an Overweight rating but lowered his 12-month price target to $51 from $54 on reduced estimates.

“As well-telegraphed by the company, in our view, and explained in our 10/26 report, several one-offs affected the qtr: reg changes in FL, which caused initial confusion among users and new patients, leading to increased market promotions; selective operational rationalization in other states plus a few store relocations; and Hurricane Ian,” Zuanic said, keeping the door open to possible positive change as the holiday season approaches.  

Last But Not Least: Village Farms VFF, whose consolidated sales were $71.1 million, a 2% decrease compared to $72.4 million in Q3 2021.

Nevertheless, Zuanic maintained an Overweight rating and increased the 12-month price target to $7.25 from $6.75 on branded cannabis performance. 

“Based on reported data, Pure Sun Farms branded cannabis sales increased nearly 60% between the Sep and Mar qtrs, well above the larger Canadian LP peers and the overall market; on branded reported sales of C$34Mn, PSF now shares the #2 slot below the likes of Organigram OGI and HEXO (NASDAQ: HEXO), Tilray TLRY is #1 on that metric.”

He added that the company did all of the above while not being profitable, with part of the growth driven by strain innovation, new brands and gradual geographical distribution expansion. 

But…“All that said, despite stellar operational performance in cannabis the stock has underperformed. Although the value of the non-THC assets can be debated on a sum-of-the-parts basis, we calculate the Canadian cannabis piece is now valued at a negative EV (-0.5x CY23E sales)” Zuanic said, adding that he nevertheless sees an opportunity with VFF shares.