What Have We Learned from the First Round of Q2 Earnings Releases?

• Q2 Earnings season is upon us, and the graph presents the results of twelve companies that reported between August 4th and August 11th. The list includes several of the largest MSOs like Curaleaf (CURA: CSE), Trulieve (TRUL: CSE), Green Thumb (GTII: CSE), and TerrAscend (TER: CSE), as well as several smaller MSOs like MariMed (MRMD: CSE), Acreage (ACRDF: CSE), Schwazze (SHWZ: OTC) and Goodness Growth (GDNS: OTCQX). Several non-plant-touching ancillary companies also reported, including Akerna (KERN: Nasdaq), WeedMaps (MAPS: Nasdaq), and Hydrofarm (HYFM: Nasdaq). 

• Major companies still to report include Ascend Wellness (AAWH: CSE), Columbia Care (CCHW: CSE), Verano (VRNO: CSE), Cresco (CLL: CSE), AYR (AYR.A: CSE), and Jushi (JUSHF: OTC).

• The blue line (measured on the left axis) shows the % miss on revenues, which ranges from a 15.2% miss by TerrAscend to a 15% beat by Goodness Growth. The largest MSOs on the list, Curaleaf, Trulieve, and GTI, all came close to revenue projections.

• The green line (measured on the right axis) depicts the more extensive range of % EBITDA misses. Several companies significantly missed consensus EBITDA estimates, including a 1,000% miss by Lowell Farm (LOWL: OTC), 150% by Weedmaps (MAPS: Nasdaq), and 86% miss by Goodness Growth (GDNS: OTCQX).

• The red line depicts the net stock performance of each company. It is computed by taking the percentage change of each stock from the day before earnings release to the day after and subtracting the percentage return on the MSOS ETF for the same days.

• Stock performance is more closely tied to EBITDA surprises, with the two most significant stock underperformers coinciding with the biggest EBITDA misses.

• The softer guidance for the remainder of 2022 and beyond is more notable than the actual quarterly earnings surprises. Since the end of July, consensus EBITDA estimates for 2023 have been revised downward for ten of the twelve companies in the chart. The median downward revision is 10%, in addition to the significant downward revisions we have previously reported.

• Investors should be taking a longer view. Quarterly earnings are not particularly important compared to the factors affecting next year. We see continued pressures on margins from declining wholesale prices and inflationary cost increases. The behavior of the cannabis consumer in the face of macroeconomic headwinds is still a wild card.

The Viridian Capital Chart of the Week highlights key investment, valuation and M&A trends taken from the Viridian Cannabis Deal Tracker.

The Viridian Cannabis Deal Tracker provides the market intelligence that cannabis companies, investors, and acquirers utilize to make informed decisions regarding capital allocation and M&A strategy. The Deal Tracker is a proprietary information service that monitors capital raise and M&A activity in the legal cannabis, CBD, and psychedelics industries. Each week the Tracker aggregates and analyzes all closed deals and segments each according to key metrics:

• Deals by Industry Sector (To track the flow of capital and M&A Deals by one of 12 Sectors - from Cultivation to Brands to Software)
• Deal Structure (Equity/Debt for Capital Raises, Cash/Stock/Earnout for M&A) Status of the company announcing the transaction (Public vs. Private)
• Principals to the Transaction (Issuer/Investor/Lender/Acquirer) Key deal terms (Pricing and Valuation)
• Key Deal Terms (Deal Size, Valuation, Pricing, Warrants, Cost of Capital)
• Deals by Location of Issuer/Buyer/Seller (To Track the Flow of Capital and M&A Deals by State and Country)
• Credit Ratings (Leverage and Liquidity Ratios)

Since its inception in 2015, the Viridian Cannabis Deal Tracker has tracked and analyzed more than 2,500 capital raises and 1,000 M&A transactions totaling over $50 billion in aggregate value.

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