The most important time of the quarter has arrived for cannabis stocks.
Earnings season is when companies reveal sales and earnings results for the previous quarter – and just as important, the company provides guidance on what investors should expect for the following quarter.
Quarterly earnings that beat expectations have a documented history of helping shares outperform the broader stock market in the following weeks and months.
On Wall Street, this pattern is known as the post-earnings announcement drift (PEAD).
Post-earnings announcement drift is the tendency for a stock’s cumulative abnormal returns to drift in the direction of an earnings surprise for several weeks (or even several months) following an earnings announcement.
Here are some more details from Wikipedia.
Once a firm’s current earnings become known, the information content should be quickly digested by investors and incorporated into the efficient market price. However, it has long been known that this is not exactly what happens.
For firms that report good news in quarterly earnings, their abnormal security returns tend to drift upwards for at least 60 days following their earnings announcement. Similarly, firms that report bad news in earnings tend to have their abnormal security returns drift downwards for a similar period. This phenomenon is called post-announcement drift.
The power and reliability of the PEAD was on full display in the cannabis sector last quarter. An elite group of early cannabis leaders delivered impressive quarterly results that have been driving shares higher for the last two months.
Curaleaf Holdings (CSE: CURA, OTC: CURLF)
CURLF is headquartered in Wakefield, Massachusetts. Curaleaf has a market cap of $2.9 billion. This company has one of the best portfolios in the cannabis industry, with operations in 17 states with 53 local dispensaries, 15 cultivation sites, and 24 processing sites.
The company made shareholders happy on May 15 when Curaleaf reported first-quarter earnings that beat analysts’ expectations. The company reported a net loss of $0.03 per share, better than expectations of $0.05 per share. Revenue fell just shy of expectations but saw a huge jump of 174% from the same period last year.
Those strong results sent Curaleaf surging for the last eight weeks. Shares are up 50% since reporting strong results.
Curaleaf is scheduled to report second-quarter earnings on August 17 after the bell. On average, analysts are expecting a loss of $0.04 per share. If Curaleaf can beat this estimate, it should be a strong catalyst for shares in the following weeks and months.
Green Thumb Industries (CSE: GTII, OTC: GTBIF)
GTBIF is headquartered in Chicago, Illinois. Green Thumb has a market cap of $2.2 billion. This powerhouse company also owns and operates an impressive portfolio of cannabis assets – it operates in 12 states, owns licenses for 96 retail locations, and operates 13 manufacturing facilities.
The company reported impressive first-quarter results on May 14. Earnings came in at a loss of $0.02, in line with expectations, but revenue surged by 267% from last year to $103 million. Green Thumb is the first cannabis company in the industry to record sales of $100 million in a single quarter.
The strong quarterly results sent shares soaring. Green Thumb is up 60% since earnings hit the street on May 14.
Green Thumb will be reporting second-quarter results on August 12. Analysts are expecting revenue of $103 million and earnings per share of $0.0. If Green Thumb beats these projections, I expect shares to have another excellent run higher.
The Big Picture on Earnings Season and Cannabis Stocks
Earnings season is the most important time of the quarter for cannabis stocks. The results have been proven to drive shares for the following weeks and months. Last quarter, cannabis stocks delivered impressive numbers which pushed shares higher for the last few months.
Looking forward, I expect another strong earnings season and I expect that to give the companies beating expectations a big boost.
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*Author Michael Vodicka owns shares of Canopy Growth Corp (CGC, WEED), Cresco Labs (CRLBF), Green Thumb Industries (GTBIF) and Curaleaf Holdings (CURLF).
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Michael Vodicka is an equity analyst with more than 20 years of experience trading and investing. His research has been featured in some of the industry’s most respected publications. He has been investing and leading investors in the cannabis sector since 2013.
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