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Enthusiastic pot stock investors have pushed the industry tracking Horizons Marijuana Life Sciences ETF (NASDAQOTH: HMLSF) 42% higher in 2019, but not everyone's having a good time at this party. These former high-flying marijuana stocks have disappointed shareholders that would like to what to expect in the quarters ahead.
Although they're all cannabis-related businesses, they operate in different corners of the industry. Which are near a bottom, which will probably fall further? Here's what you need to know.
| Company (Symbol) | Year-to-Date Stock Performance | Market Cap |
|---|---|---|
| Tilray (NASDAQ: TLRY) | (38%) | $4.3 billion |
| MedMen Enterprises (NASDAQOTH: MMNFF) | (23%) | $209 million |
| KushCo Holdings (NASDAQOTH: KSHB) | (11%) | $422 million |
Data source: Yahoo! Finance.
1. Tilray: This is not how Amazon got started
The first full quarter of recreational marijuana sales in Canada has been a disappointment across the board, and Tilray's fared worse than any of its peers.
Cheerleaders for the stock have been trying to soothe themselves by comparing Tilray's unprofitable operations to Amazon.com during its early years. Any comparisons to America's heavyweight champion of e-commerce should be treated with suspicion, though, and this one doesn't hold up to scrutiny.
It's true that Amazon raised a lot of equity to offset huge operating losses in the beginning, but Amazon's operating expenses never exceeded top-line revenue. Amazon's fourth and fifth years as a public company were probably its scariest, and operating expenses during this period only rose to 225% of the gross profit available to pay them.
TLRY gross profit (TTM). Data by YCharts.
By comparison, Tilray's operating expenses reached 144% of top-line revenue in the first quarter, and operating expenses climbed to a shocking 618% of the gross profit available to pay for those expenses. To top it off, Tilray issued $475 million worth of debt in 2018, and the interest on these notes alone exceeds the gross profit that Tilray's operations are bringing in.
Unless sales double and expenses are cut in half, the company will end up chewing through its $325 million cash cushion quickly. Unfortunately, it doesn't look like its domestic market is going to meet the company halfway. March cannabis sales reached a new monthly peak, but they aren't growing very fast. Dry flower sales in March reached 7,627 kg, which was just 27 kg higher than the previous peak in December. Sales of cannabis oil broke a record in March at 7,918 liters, but it was only four liters more than Health Canada reported in January.