When Canopy Growth (TSX:WEED) (NYSE:CGC) founder and co-CEO Bruce Linton was unexpectedly ousted from the company last week, it caused concerns among pot stocks and highlighted an industry-wide issue that needs to be addressed.
The decision to remove Linton from the company came after Canopy, which is the world’s largest cannabis company, reported a net loss of $670 million CAD and an underwhelming net revenue of $226.3 million for its 2019 fiscal year-end results.
The reported losses were much larger than analysts expected. They were also a shock to Canopy’s largest investor, US-based beverage maker Constellation Brands (NYSE:STZ ), which holds a 38% stake in the company and four of the seven board positions.
Pot Stocks are Not Delivering
Although Canopy said in its press release that the change in leadership was to help guide the company’s next phase of growth, many believe it was the lack of revenue from the industry giant that led to Linton’s termination.
It also signaled the need for pot stocks to deliver in the near-term to meet the expectations of investors.
Canopy Growth, along with a number of other cannabis companies, is playing the long game. And while long-term growth may be considered a strategic move that leads to larger growth down the line, there were still expectations that need to be met to keep shareholders happy.
Analysts had mixed feelings about Linton’s surprising departure, but most saw the management change as beneficial for the company and maintained “buy” ratings for the pot stock.
Another cannabis giant that hasn’t been performing up to par financially is Aurora Cannabis (TSX:ACB) (NYSE:ACB), which experienced significant losses in 2018. ACB stock dropped by over 40%, making it one of the worst-performing pot stocks of 2018. Luckily, the company has increased its revenue this year and reported a 33% lower net loss than in 2018.
On the flipside, MariMed (OTCQB:MRMD), which was considered one of the best-performing pot stocks last year, is down 38% so far this year. Despite its sales growth and reduced operating costs, the company has posted a nominal loss. Yes, it was a 99% improvement from Q1 2018, but investors are still waiting for the company to turn a profit.
Promising Pot Stocks that are Performing
One of the pot stocks that is performing at the top so far in 2019 is Curaleaf Holdings (CSE:CURA) (OTCQX:CURLF). The US-based cannabis company’s stock has increased by 133% since the beginning of the year, despite posting a loss.
HEXO Corp. (TSX:HEXO) (NYSE:HEXO) is another company that has been having an outstanding 2019 so far. Not only has the company’s share price jumped by 125%, but it has also caught the eye of an analyst from the Bank of America. The Canadian company was given a “buy” recommendation and a price target of $10.
It’s no surprise, considering that HEXO completed its first harvest at its 1 million square foot greenhouse in April and signed a partnership with Molson Coors (NYSE:TAP) in preparation for legalization 2.0 in Canada.
When it comes to pot stocks turning a profit, OrganiGram Holdings Inc. (TSXV:OGI) (NASDAQ:OGI) is leading the way. The company reported a record net revenue of $26.9 million in Q2 2019, which was more than double the net revenue seen in the first quarter.
Then, there is Trulieve Cannabis Corp. (CSE:TRUL) (OTCPK:TCNNF), a vertically integrated seed-to-sale company and the first and largest fully-licensed medical cannabis company in Florida. Trulieve has continued to report record profits, growing its revenue from $15.2 million in Q1 2018 up to $44.5 million in Q1 2019, representing a 192% increase.
CannTrust Holdings (TSX:TRST) (NYSE:CTST), a federally regulated licensed producer of medical and adult-use recreational cannabis in Canada, has also seen its revenue grow. In fact, CannTrust’s Q1 2019 revenue grew 115% year-over-year to $16.9 million.
Investors who are interested in pot stocks will want to keep an eye on cannabis companies that are either already turning a profit or on the road to making money in the near term. It is also important to pay attention to the management of those companies, as having the right CEO can speak volumes to whether or not a company will be successful.
While the loss of Bruce Linton may have shocked shareholders, it might prove to be the best thing for the company. What do you think?
Featured Image: DepositPhotos @VadimVasenin