Cannabis Watch: Aurora Cannabis reverses early losses, but Tilray turns lower in afternoon trade

Cannabis Watch: Aurora Cannabis reverses early losses, but Tilray turns lower in afternoon trade

Aurora Cannabis Inc. shares reversed their early losses to move higher in afternoon trade Wednesday, as investors shrugged off the company’s fiscal third-quarter results that showed losses growing at a faster-than-expected clip.

The Canadian company posted losses of C$160.1 million ($119 million), or 16 cents a share, for its fiscal third quarter, after losses of C$20 million, or 4 cents a share, in the year-ago period. Aurora grew gross revenue to C$75.2 million, up from C$16.1 million in the year-ago period. After excluding excise taxes paid to the Canadian government, net revenue came to C$65.2 million.

Analysts polled by FactSet expected adjusted losses of 5 cents a share on net revenue of C$67.6 million. The company said it lost C$77.6 million from operations, nearly double in what it lost in the year-ago period. U.S.-listed shares ACB, +4.44%  fell 2% in early trade before reversing those losses to trade up 4.1%. The Canadian-listed shares ACB, +3.80%  were also shed losses to trade up 3.5%.

Jefferies analyst Owen Bennett said the sales improvement “was impressive against an expected wider industry backdrop of roughly flat.”

With clear signs of operational strength across both medical and recreational and international markets, “we continue to view Aurora’s valuation relative to certain peers as attractive,” he wrote in a note to clients. Jefferies rates Aurora a buy with a stock price target of C$14, that is about 20% above its current trading level.

Tilray Inc. shares TLRY, -2.42%  were also choppy after that company reported wider-than-expected losses, but revenue that topped estimates. The company said it lost $30.3 million, or 32 cents a share, in the first quarter, widening from $5.2 million, or 7 cents a share, in the year-ago period. Revenue rose to $23 million from $7.8 million in the year-ago period. Analysts surveyed by FactSet had estimated losses of 25 cents a share on revenue of $20.5 million.

Chief Executive Brendan Kennedy told MarketWatch in a phone interview that while there was a widespread prediction of a supply glut of cannabis in Canada, that has not turned out to be the case. In fact, Tilray continues to have difficulty sourcing an adequate amount of high-quality marijuana, and Kennedy expects supply issues to remain a problem in Canada for the next 18 to 24 months.

Read now: An entire industry is being built around CBD, but we really don’t know that much about it

The reason: The suppliers Tilray expected to purchase from have not been able to produce the needed cannabis, despite promises before legalization that they used to pitch themselves to partners and investors.

Don’t miss: CEO of pot producer Cronos talks about Altria deal, weed drinks and the rise of CBD

“Some of them were lying about their funded capacity,” Kennedy said in a telephone interview with MarketWatch, adding that public companies inflated that metric because investors based their valuations on it.

For more, read: Tilray CEO says marijuana companies lied about how much pot they could grow

Also: Tilray says pot supply is still an issue, but sales triple and push stock higher

Jefferies analyst Owen Bennett said the Tilray report showed encouraging signs, notably an 80% jump in recreational sales over the fourth quarter, although that triggered a steep decline in average selling price.

International sales showed strong growth from the year earlier and the company reported progress with its Portugal facility. The company also said it is putting edibles and beverage infrastructure in place for the full legalization of cannabis derivatives in Canada in October, he said.

“On a negative, it is still unclear at what sort of scale they can do derivatives,” said Bennett. The stock was last down 3%.

See: Canopy Growth’s quiet co-CEO on the pot company’s ambitions in the U.S. and more

The Green Organic Dutchman shares TGOD, +2.87% TGOD, +2.87%  rose 2.8% after the company posted a C$14.1 million loss for the first quarter and revenue of $2.4 million, all of which stemmed from its Poland subsidiary. The company has still not sold cannabis in Canada.

CannTrust Holdings Inc. CTST, +2.63% TRST, +2.69%  shares rose 2.3%, as analysts weighed in on earnings reported Monday. GMP analyst Martin Landry said the numbers were in line with expectations, but that his forecasts could prove conservative given the additional production the company is expecting to come on line later this year.

Chief Executive Peter Aceto told MarketWatch on Tuesday that the company is on track with its goal of 50,000 kg of capacity by the third quarter, while outdoor cultivation could add another 75,000 kg.

“Our 2020 forecasts are based on a sales volume of 48 tonnes which may be conservative given that the company could have at least 125 tonnes available for sale in 2020,” Landry wrote in a note to clients. “This does not include its planned greenhouse expansion which could add another 50 tonnes of production in H2/20, or its intentions for additional outdoor cultivation.”

Landry rates the stock a buy and is sticking with his stock price target of $15, which is 81% above its current trading level.

In regulatory news, Michigan has granted licenses to three dispensaries to deliver medical cannabis to patients homes, as news site Marijuana Business Daily reported. The move may offer entrepreneurs in the state a new business opportunity. Delivery is allowed in municipalities with retail stores as well as those that banned them

Also in Michigan, state representatives Yousef Rabhi (D-Ann Arbor) and Jim Lilley (R-Park Lake) introduced a resolution in the state House urging passage of the SAFE Banking act, or Secure and Fair Enforcement Banking Act of 2019, by Congress, according to media reports. The move is the latest by lawmakers in states that have legalized cannabis seeking protection for banks that want to do business with companies.

Because cannabis is still banned at the federal level, banks that are federally backed are reluctant to take on the risk of offering their services to licensed companies, leaving them to conduct much of their business in cash with the attendant risks.

“Michigan cannabis businesses operate in a legal, highly regulated industry. They deserve to have accesses to the same banking opportunities as any other business in this state,” said Michigan Cannabis Industry Association Executive Director Robin Schneider.

Scientists in Canada have made progress in their efforts to map the cannabis genome, according to a recent study in the Proceedings of the National Academy of Sciences, as reported by Jessica Rabe, co-founder of DataTrek Research. That means that growers will be able to use DNA analyses to screen seedlings for therapeutic or medicinal properties, instead of waiting for plants to mature.

“Within three years… none of the plants that we’re growing currently will continue to be produced, and there will be unbelievable new varieties as a result of marker-assisted hybridization and trait-based selection,” said Jeremy Plum at Prūf Cultivar in Portland, as cited by Rabe.

It will also allow growers come up with new strains that are more resistant to disease.

Elsewhere in the sector, Aphria Inc. APHA, -0.07% APHA, -0.11%  was down 0.8% and Hexo Corp. HEXO, +5.12%  was down 1.3%. Market leader Canopy Growth was down 0.82%.

Medical cannabis retailer MedMen Enterprises Inc. shares MMNFF, -1.56%  were up 1%. Valens GroWorks Corp. VGWCF, +1.50%  was up 2%.

Organigram Holdings Inc. OGRMF, +4.12%  was up 3.2%, GW Pharma PLC GWPH, +1.48%  was up 1.3% and Green Growth Brands Inc. GGBXF, +0.81%  was up 2.6%. Curaleaf Holdings Inc. CURLF, -3.40%  was down 2.3%.

Read also: How living near a marijuana dispensary affects your home’s price

Read: Tilray stock rises after the company shows it can sell recreational pot

The Horizons Marijuana Life Sciences ETF HMMJ, +0.70%  was up 0.6% and the ETFMG Alternative Harvest ETF MJ, +1.89%  was up 1.4%.

The Dow Jones Industrial Average DJIA, +0.65%  was up 0.5% and the S&P 500 SPX, +0.80%  was up 0.7%.

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Cannabis Watch: All of MarketWatch’s coverage of cannabis companies

Additional reporting by Max A. Cherney