Cannabis Stock Chart: How Significant Are the Revenue Losses?

  • Fourth-quarter earnings were generally disappointing relative to analysts’ expectations. Still, the cannabis stock markets did not distinguish meaningfully between companies with a high percentage of misfires and those close to expectations.
  • The green line in the chart shows the percentage shortfall in actual Q4 EBITDA relative to consensus analyst estimates. The orange line calculates stock performance relative to the MSOS ETF from the day before the earnings release to the day after the release. The dotted trend line shows a modest positive slope, indicating that better earnings performance had a slight impact on stock performance.
  • The correlation of 0.20 is quite low, indicating that during this period the drivers of stock performance had little to do with reported earnings.

  • The underperformance itself is not particularly surprising. We call it the airport flight delay theorem. When you are at the airport and they go through the loudspeaker telling you that your flight has been delayed, have you ever noticed that they often come back to tell you that the flight is delayed again? We think the same way about corporate earnings forecasts and analyst earnings estimates. The tendency is not to reduce estimates enough, hoping that the company will make up for lost ground. An example of this is the double-digit downward revisions to 2022 estimates that we have seen throughout 2021.
  • It makes sense that investors are indifferent to the quarter’s profit losses. After all, we have raging inflation, a hot war in Eastern Europe, new Covid outbreaks, new federal legalization proposals, New Jersey delays, and more. And against that, a quarterly shortfall?
  • Viridian has always advocated taking a longer term view and focusing on more strategic considerations. Who will benefit the most from the rollout in New Jersey and New York? How should you best play a California turnover? Who is likely to be acquired next? And of course the biggie, how do you play for possible federal legalization?
  • As analysts, we would never say that earnings don’t matter, but with the chaos of the current political and economic environment, we have to admit that earnings for the current quarter don’t carry much weight.

the Viridian Capital Chart of the Week highlights key trends in investment, valuation and mergers and acquisitions Viridian Cannabis Transaction Tracking.

The Viridian Cannabis Deal Tracker provides the market information that cannabis companies, investors and acquirers use to make informed decisions about capital allocation and M&A strategy. The Deal Tracker is a proprietary news service that monitors capital raising and M&A activity in the legal cannabis, CBD and psychedelic industries. Each week, the Tracker aggregates and analyzes all completed deals and segments each based on key metrics:

  • Industry sector (one of 12 sectors, from culture to brands)

  • Monetary value of the transaction

  • Region in which the transaction took place (country or US state)

  • Status of the company announcing the transaction (Public vs. Private)

  • Transaction structure (equity vs. debt)

  • Main terms of the agreement (Pricing and Valuation)

Since its creation in 2015, the Viridian Cannabis Transaction Tracking has tracked and analyzed over 2,500 capital raisings and 1,000 M&A transactions totaling over $50 billion in total value.

Photo by Javier Hasse.

The previous article comes from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Karen J. Nelson