The Green Market Report Cannabis Company Index has added six companies to the Index and published its second-quarter recap report. The Index experienced an overall 8% decline in the second quarter due to the drop in valuations of the companies. Year-to-date the Index is still up 27%. The second-quarter stock performance was almost the polar opposite from the first quarter. The first quarter saw the Index companies delivering mostly positive returns. In the second quarter, most of the Index companies turned in negative results with only a handful in the green zone. Consolidation continues in the industry and the gap between small and large companies seems to be widening.
New Company Additions
The Index will be adding the following companies for the third quarter: Ayr Wellness (OTC: AYRWF), Curaleaf (OTC: CURLF), Fire & Flower (OTC: FFLWF), Gage Cannabis, Turning Point Brands (NYSE: TPB), and Verano (OTC: VRNOF). In May, Ayr Wellness Inc. (OTCQX: AYRWF) reported its financial results for the quarter ending in March with revenue rising 74% to $58.4 million. The company said it was in the early innings of its 2021 strategic transformation having closed on acquisitions like Liberty Health Sciences and adding the fourth largest retail footprint in Florida.
It’s hard to explain how Curaleaf wasn’t already in the Index, but it is now. In May, Curaleaf reported its first-quarter total revenue increased by 170% to $260 million versus $96 million in the first quarter of 2020. Growth in retail revenue was primarily due to strong organic growth across Curaleaf’s footprint, the opening of six new stores across Florida, Maine, and Pennsylvania, and the rapid acceleration of revenue growth in Arizona after the introduction of adult-use sales in January of 2021. In June, Fire & Flower Holdings Corp. (OTCQX: FFLWF) reported that in its first quarter ending in May the company saw its revenue rising 90.7% to $44.1 million. The company said it was the fourth consecutive quarter of positive Adjusted EBITDA of $2.3 million as compared to an Adjusted EBITDA loss of $1.4 million for the first quarter of 2020.
In Michigan, Gage Cannabis (CSE:GAGE) has managed to get itself on the radar of several research analysts this summer and all agree that the company is a buy. Eight Capital, Viridian Capital Advisors, and PI Financial have all issued reports with Buy ratings and target prices ranging from C$4.25 to C$7.50. Gage also reported that its revenue increased 1,972% for the full year of 2020 to $39.9 million versus $1.9 million in the fiscal year 2019. Gage also noted that at this time it has eight cultivation facilities in operation today (three Gage operated and five contracted cultivation assets) and is expecting to expand to 13 cultivation facilities by year-end.
For a company that mostly sells papers, Turning Point Brands (NYSE: TPB) is turning into a behemoth in the cannabis industry. The company announced during its recent earnings results that it was increasing its guidance for 2021 net sales to a range of $422 million to $440 million. This is up from the previous guidance of $412 million to $432 million. In May, Verano Holdings Corp. (OTCQX: VRNOF) reported that its revenue on a pro forma basis as if the AltMed acquisition were completed on January 1, 2021. With that in mind, the first quarter of 2021 revenues increased 117% from the first quarter of 2020 to $143 million. Verano has completed the acquisitions of Territory, Emerald, and Local Joint, all in Arizona, giving it the third-largest retail footprint in the state with six active storefronts plus two cultivation facilities.
The Index is removing the following companies for the third quarter: Aphria, Zynerba Pharmaceuticals, Aleafia Health, Auxly, Akerna Corp., and Slang Worldwide. The landscape for available cannabis companies to be placed in the index continues to grow. The choices for larger companies with better revenues have allowed for Green Market Report to be more discerning in its choices.
Aphria was removed because it was acquired by Tilray. Zynerba is true biotech and won’t have revenues until its products hit the market, which could be some time from now. Aleafia’s revenue declines have been disappointing. Auxly’s debt could become a problem even though the company has managed to extend maturities. The revenue just doesn’t seem to support this much debt and the company could run into trouble. Akerna has struggled to show improving revenue and while the company is valiantly making acquisitions to get there, the Index has found better candidates. The same could be said for Slang, which continues to strengthen the company. The management is making great moves, but the Index is looking to larger names with bigger revenue streams.
While the second quarter was rough for cannabis stocks. The third quarter looks to be turning around and hopefully, valuations will continue to recover. The catalysts for the industry are overwhelmingly positive. New Jersey sales could begin in 2021 giving the state a jump on capturing the New England market. Then New York and New Mexico are both set for April 2022. Sales for these states are expected to be in the millions.
As retailers are slowly able to recover from COVID lockdowns and restrictions, more sales records are bound to be broken. Canadian retailers that suffered from store closures in the first quarter and are happy to be opening their doors once again. In the U.S., tourism is on the rise and people who have been stuck at home are ready to get out of town and party.