Cannabis Sector Looks Better Now Despite Pandemic, Says Expert

There’s never been a better time to invest in cannabis, one private cannabis investment leader told the Investing News Network (INN). 

Matt Hawkins, managing partner with cannabis-exclusive private investment firm Entourage Effect Capital, focuses mostly on the private side of the marijuana business, but said he is encouraged by the latest batch of quarterly results from leading companies in the public sector.

“We’ve been investing in the industry since 2014, we’ve made 66 investments I believe. There’s never been a better time to invest in the industry,” Hawkins said.

The partner pointed to the results of Trulieve (CSE:TRUL,OTCQX:TCNNF), TerrAscend (CSE:TER,OTCQX:TRSSF), Canopy Growth (NYSE:CGC,TSX:WEED) and Green Thumb Industries (CSE:GTII,OTCQX:GTBIF) as the bellwethers of the public arena, saying they have shown profitable improvements from the recent past.

“I think across the board it was a very good quarter,” the investor said.

Despite all the challenges to the economy, Hawkins said that the effects of the coronavirus have offered a chance for cannabis to stand up as an industry and gain territory amid the uncertainty.

Hawkins highlighted the cannabis sales seen in the US during lockdown times as an encouraging sign.

The investor added that he expects to see momentum pick up for discussions around legalization as the presidential election heats up in the country, regardless of the actual result of the race.

“We feel like there’s going to be an even further renewed push, no matter who gets elected in November, for legality both at the federal level and continued legality at the state level,” Hawkins said.

Those talks could also be fueled as more conservative US lawmakers realize that the revenue available from the cannabis industry by way of taxes is too tantalizing to pass up.

“I think even conservative-leaning folks on the right side of the aisle are starting to realize that this revenue is really just lost revenue,” Hawkins said.

Last week, a variety of companies, including Tilray (NASDAQ:TLRY), Sundial Growers (NASDAQ:SNDL), Zenabis Global (TSXV:ZENA), Canopy Rivers (TSX:RIV,OTC Pink:CNPOF) and The Green Organic Dutchman Holdings (TSX:TGOD,OTCQX:TGODF), all reported results to their investors and the market at large.

“We have focused on reducing costs, driving international revenue growth, mitigating COVID-19 related challenges, and improving our net loss and reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA),” Brendan Kennedy, CEO of Tilray, said in a statement announcing the company’s Q2 results.

The Tilray executive was referring to the cuts the firm has put in place as a way to restructure its operations. These changes started to spread in the Canadian cannabis industry well before the impact of the coronavirus reached the stock market.

“With our significant cost cutting and balance sheet actions behind us, we have positioned Tilray to enter the second half of 2020 in a stronger position,” Kennedy said. The firm is attempting to reach a breakeven or positive adjusted EBITDA level in Q4 of this year.

Tilray reported a 10 percent uptick in its revenue for the quarter compared to the same time period last year, thanks to strong sales from its international medical cannabis division.

However, this increase wasn’t enough to clear the previous quarter, in which the company generated C$70.7 million compared to the recent C$69.4 million result. Overall, Tilray posted a net loss of C$81.7 million for the quarter.

Fellow Canadian producer Canopy Growth released better-than-expected results thanks to a quarter-on-quarter increase in revenue.

“We are implementing a renewed corporate strategy with the appointment of a new leadership team which will focus on delivering quality products to our consumers,” said Canopy Growth CEO David Klein.

The company credited its results to strong medical sales in Canada and Germany. The net loss of Canopy Growth totaled C$128 million.

Similar to Tilray, Canopy Growth was also forced to make staff reductions and evaluate its spending.

Meanwhile, below the border, Trulieve continued its strong growth by posting total net income of US$6.6 million in its Q2 results, boosted by over US$120 million in revenue.

Kim Rivers, CEO of Trulieve, said she is looking forward to the development of the Florida market as the firm expects to have 68 stores by the end of the year.

In light of the recent results, Trulieve is increasing its yearly guidance to between US$465 million and US$485 million for revenue, and a range of US$205 million to US$225 million in adjusted EBITDA.

Fellow US corporation Green Thumb told investors that its US$222.2 million revenue number for the first half of 2020 surpasses its entire 2019 revenue tally.

“Demand is strong as cannabis continues to behave like a consumer staple,” Ben Kovler, founder and CEO of Green Thumb, said in a statement.

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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.