‘Fab Four’ Emerge in Expanding Marijuana Market: Cannabis Weekly

(Bloomberg) — With more than a dozen cannabis companies reporting earnings last week, what stood out for investors was the most basic concept in business: growth.

Almost across the board, big companies reported sales gains approaching 100% or more, despite tough comparisons from a year ago, when consumers stockpiled cannabis because of the pandemic. There are still questions about profitability for some, and middling stock performances this year reflect that, but investors are starting to recognize signs that the industry is maturing.

Todd Harrison, founding partner of CB1 Capital Management, a New York-based cannabis-focused fund, even thinks there’s a hierarchy shaking out akin to the tech industry. He calls Curaleaf Holdings Inc., Green Thumb Industries Inc., Trulieve Cannabis Corp. and Cresco Labs Inc. a “Fab Four” of the cannabis sector, taking over from the Canadian growers that previously dominated. Harrison compared their ascendancy to the rise of Facebook, Amazon, Netflix and Google — the FANG stocks — over the old dot-com-era companies.

“Primary metrics often determine the success of an investment,” Harrison, whose fund already has a position in those four cannabis names, said in a newsletter. He also suggested Verano Holdings Corp., which went public this year, may also belong on that list.

Curaleaf’s sales jumped 166% last quarter from a year ago, and rose 20% over the prior three-month period, even as consumers resumed spending on travel, nights out and other discretionary categories. “We grew almost double other companies in the market,” Chairman Boris Jordan told me in a phone interview. “And there will be further acceleration into next year.”

Green Thumb, the second biggest multistate operator by market cap, boosted revenue 85% year-over-year, and 14% over the prior quarter. Verano reported sales up 164% over the same period a year ago. Cresco’s were up 123%. Trulieve’s were up 78%.

Despite the growth, the velocity of these companies sometimes goes unrecognized outside the cannabis industry. Tech companies often steal the spotlight as high-growth names, but many in that industry — especially the biggest firms — would envy the kind of gains being reported in the marijuana market.

“Today really is day one for the great American cannabis growth story,” Green Thumb Chief Executive Officer Ben Kovler said on a call with analysts. In a phone interview, Kovler said the growth reflects an unmet appetite for cannabis broadly. “It’s as simple as there is a lot of demand for cannabis from American consumers.”

NUMBER OF THE WEEK

13%: The amount that the AdvisorShares Pure US Cannabis ETF has fallen over the last three months, even as some companies have reported strong revenue growth.

QUOTE OF THE WEEK

“Consumers are now spending money on travel, hotels, cars, airline tickets — things they weren’t spending on during the pandemic, so we saw softness in the summer months. We think in September and October, cannabis sales will accelerate again,” said Curaleaf’s Jordan, speaking in a phone interview after the company’s second-quarter earnings report.

WHAT YOU NEED TO KNOW

The U.S. Food and Drug Administration objected to an application from Charlotte’s Web Holdings Inc. for a CBD product to be sold as a dietary ingredient, leaving a cloud of uncertainty over the booming industry for the cannabis-derived substance.Among the biggest U.S. multistate operators that reported results last week, Curaleaf’s second-quarter adjusted earnings narrowly beat estimates. Green Thumb’s did too, along with Trulieve Cannabis.Consumers can now buy marijuana through the Apple app store, as long as it’s from a licensed dispensary and complies with local and state laws.A Canadian CBD firm that listed its stock in London didn’t generate much trading, highlighting the difficulty of generating investor interest for small companies.A proposed California law would let cannabis retailers and delivery apps advertise on billboards along interstate highways.

EVENTS

MONDAY 8/16

MediPharm Labs Corp. reports second-quarter earnings before the market opens.RIV Capital Inc. reports first-quarter earnings before the market opens.Alcanna Inc. reports second-quarter earnings after the market closes.

TUESDAY 8/17

Ayr Wellness Inc. reports second-quarter earnings before the market opens.

THURSDAY 8/19

TerrAscend Corp. reports second-quarter earnings before the market opens.

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William Murphy

William Murphy

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