Acreage stock is in the red today after US cannabis operator Acreage Holdings (OTCQX:ACRGF) reported fourth-quarter results on Wednesday that missed analyst expectations.
The Earnings
For the three months ended December 31, Acreage reported a loss of US$50.5 million, with revenue coming in at US$21.1 million, which it attributed to regulator delays in opening new cannabis dispensaries in some US states. The company said it is aiming to generate positive EBITDA by the second half of the year through an alternative cost plan that the company says should save around US$7 million. Despite revenue for the full year doubling to US$155 million, full-year net loss was US$150.3 million, leading to an 8% drop-off in Acreage stock.
“While 2019 was a challenging year for the industry, I am pleased with the many accomplishments we delivered for shareholders including: launching three award-winning brands, implementing our Canopy Growth strategies, and significantly growing our retail and wholesale businesses. We subsequently secured capital for our short-term operating requirements, and we are targeting positive pro-forma adjusted EBITDA in the second half of the year,” said CEO Kevin Murphy. Acreage stock is currently trading for $4.07.
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Does the Canopy Deal Represent Value in Acreage Stock?
Last year saw Acreage Holdings reach a tentative deal with major Canadian cannabis firm Canopy Growth (TSX:WEED) (NYSE:CGC), which will allow Canopy to acquire Acreage upon a change in federal laws in the United States to permit the general cultivation, distribution, and possession of marijuana. Acreage will continue to act as an independent firm until then; however, Acreage shares are currently trading at approximately a 60% discount to the implied Canopy offer price, indicating investor skepticism about the deal.
Canaccord Genuity analyst Matt Bottomley told investors in a research note that this discounted value of Acreage stock could actually represent significant value appreciation for the company's shareholders, given the positive sentiment towards federal legalization in the US. While Donald Trump has regularly flip-flopped on his cannabis stance, choosing to leave the matter to state legislators, Democrat frontrunner Bernie Sanders has promised to legalize cannabis on his first day in office.
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