Will Earnings Make Cronos and Canopy Growth’s Share Prices Soar?

Two cannabis groups are reporting Q2 earnings soon. The Cronos [CRON] share price gained 5.62% since the start of the year to 2 August, while the Canopy Growth [CGC] or “Canopy” share price fell 23.70% in the same period. However, both stocks have followed similar patterns to each other throughout the year. Both surged to a peak on 12 February, with the Cronos share price closing 124.06% up for the year at $15.55 while the Canopy share price reached $52.17, up 111.73%.

Both stocks then entered a period of steep decline, till 8 March when the Cronos share price closed at $9.44 and the Canopy share price at $30.86. After a short rally, the decline continued. On 13 May the Cronos share price was down at $7.18 and the Canopy share price at $22.12.

The stocks’ performance really began to diverge between the two companies on 28 May, when a rally for both saw the Cronos share price gain 15.22% on the previous day, but the Canopy share price only managed 5.54%. Both stocks have dwindled since and the Canopy share price has gained just 2.84% over the past 12 months, compared with the Cronos share price, which has gained 11.91%.

 

Sales hitting highs

Both Cronos and Canopy Growth are set to report their Q2 2021 earnings before markets open on 6 August.

Zacks analysts estimate that Cronos will report loss per share of $0.07, a 63.16% improvement on the equivalent figure from last year of $0.19 loss. CNN Money, however, is slightly more pessimistic, with a consensus estimate of $0.08 loss. Either way, both panels seem confident that Cronos will report smaller losses than Canopy, which Zacks expects to report EPS loss of $0.19, a 5.00%  year-over-year improvement. By contrast, CNN Money’s panel expects Canopy’s earnings to fall 5.00% to $0.21 loss per share.

Zacks expects Cronos’s sales to come in at $18.68m, 89.07% above the $9.88m generated a year ago. CNN Money is significantly more pessimistic, with a consensus sales estimate of $15.3m. Canopy is forecast by Zacks to generate $127.78m in sales, 48.74% up from last year’s equivalent figure of $85.91m, while CNN Money’s consensus estimate puts Canopy’s sales at $124.0m.

 

Between both panels, there is a lot of variance in sales forecasts. Zacks range of estimates for Cronos runs from $14.00m to $21.10m, so the range is more than 50% of the lower bound. CNN’s is slightly narrower, with a low estimate of $14.0m and a high estimate of $18.0m. Zacks estimates for Canopy’s sales stretch from $112.75m to $140.35m, while CNN Money’s for Canopy ranges from $112.8m to $136.2m.

Zacks forecasts Cronos’s sales to increase 80.74% to $84.44m through 2021 and to grow a further 86.43% in 2022 to $156.41m. Losses are expected to total $0.73 per share for 2021 before gaining 71.18% to $0.21 per share in 2022. Canopy, meanwhile, is forecast to see sales grow 43.67% to $622.64m in the current financial year (to March 2022), and a further 41.49% to $881m the year after. Earnings are expected to gain 72.22% this year to $0.60 loss per share, and another 70.83% the following year to $0.17 loss.

 

Harvesting gains

In 2021, both the Cronos share price and the Canopy share price have lagged behind the broader cannabis industry, which on the whole is enjoying a buoyant run.

The Global X Cannabis ETF [POTX] gained 16.36% in the year to 2 August, while the ETFMG Alternative Harvest ETF [M] gained 24.60%. Both funds recorded the same dramatic spike in February that the Cronos share price and the Canopy share price experienced, a consequence of the spate of meme trading that led to a short squeeze on cannabis stocks.

Canopy is POTX’s top holding with 10.10% of net assets as of 2 August, while Cronos comes in third on the list with 9.16%. Canopy and Cronos come third and fourth in the list of MJ’s top holdings, with 6.96% and 6.28% respectively as of 31 July. The relative overperformance of fellow cannabis and pharmaceutical company Tilray [TLRY], which gained 76.88% in the year to 30 July, may explain MJ’s overperformance compared to POTX. Tilray is MJ’s second-largest holding but POTX’s fourth-largest (although its weightings are, interestingly, similar in each: 8.75% in MJ