Third quarter earnings season is slowly wrapping up and analysts are tweaking their ratings accordingly.
Cantor Fitzgerald analyst Pablo Zuanic kicked off the week by taking a closer look at two cannabis stocks.
Auxly Cannabis Group Inc CBWTF
The analyst retained a 'Neutral' rating on the company's stock while lowering its price target to CA$0.03 ($0.022) from CA$0.08.
Auxly reported a 19% year-over-year drop in total net revenues to CA$19.8 million in the third quarter earlier this month.
Net loss climbed to $CA60.1 million, compared to CA13.53 million in the prior year's period, while adjusted EBITDA came in negative at CA$5.8 million, representing an improvement of CA$0.3 million as compared to the same period of 2021.
CEO Hugo Alves called the quarter transitional, taking into account the company's portfolio and pricing adjustments, which led to "lower than expected revenue for the quarter," Zuanic is worried mainly because of the company's balance sheet.
As of Sept. 30, the company had CA$16.01 million in cash and equivalents, CA$345.06 million in total assets, and CA$173.68 in debt.
"The balance sheet is the main risk," the analyst said. "Even in an M&A scenario, Auxly shareholder upside may be limited given the high debt level."
Columbia Care Inc. CCHWF
Zuanic retained an "Overweight" rating on the company's stock while maintaining his price target of $8.37.
Columbia Care recently reported growth in both third-quarter revenue and gross profit, but ZUanic was mainly focused on the pending acquisition by Cresco Labs Inc. CRLBF.
The $2.1 billion deal was announced in March and is expected to give Cresco the largest annualized pro-forma revenue in cannabis at over $1.3 billion and a strategic and broad footprint comprising 18 states.
Zuanic said the deal could be wrapped up by the end of 1Q23.
Meanwhile, Cresco and Columbia recently announced the signing of definitive agreements to divest certain New York, Illinois, and Massachusetts assets to an entity owned and controlled by Sean "Diddy" Combs.
In an earlier note, Zunaic highlighted that the move "meaningfully increases the probability that Cresco's deal to acquire Columbia Care will close" early next year.
As part of the Cresco deal, Columbia Care also needs to divest additional assets, including its vertical operations in Ohio, its Maryland-based processing unit and the Florida paper license.
"Cresco may opt, although it is not required, to also sell part of its assets in FL and PA for efficiency purposes," Zuanic added.
CBWTF Price Action
Auxly's shares traded 1.62% higher at $0.0163 per share at the time of writing on Monday.
CCHWF Price Action
Columbia Care's shares traded 5.26% lower at $1.62 per share at the time of writing on Monday.
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