Understanding Market Reaction to 4th Quarter 2023 Earnings in the Cannabis Sector

The recently concluded 4th quarter of 2023 brought a wave of earnings releases in the cannabis sector, showcasing a mix of positive outcomes and a few deviations from expectations. Surprisingly, market response this time seemed well-aligned with fundamental performance metrics, displaying a notable .75 correlation between EBITDA surprises and subsequent stock movements.

• A visual representation of the % revenue beat (blue bar), % EBITDA beat (yellow bar), and the percent revision to 2024 EBITDA estimates (purple bar) was provided. The green line depicted the net percent change in stock prices from two days pre-release to two days post-release, accounting for changes in the MSOS ETF during the same period.

• Collectively, companies surpassed aggregate revenue estimates by 1.05% and EBITDA estimates by a strong 7.07%.

• Among the noteworthy EBITDA beats were:

  • Green Thumb (GTBIF) exceeded EBITDA estimates by 14%, driven by robust performance in the Maryland market, leading to enhanced results in the retail segment.

  • Trulieve (TCNNF) outperformed EBITDA expectations by 22.3%, attributing its success to disciplined SG&A cost management and improved gross margins stemming from cost-efficiency gains and optimized inventory tactics.

• However, several notable EBITDA misses were also observed:

  • Marimed (MRMD) fell short of EBITDA projections by roughly 25%, citing construction delays induced by supply chain disruptions as the primary cause. Despite aiming for modest revenue and EBITDA growth figures for the coming year, the company hinted at potential margin contractions. Analysts adjusted their 2024 EBITDA projections downward by 13%, albeit slightly above the company’s own guidance.

  • Cannabist (CBSTF) missed consensus EBITDA estimates by around 38%, pointing to margin erosion of approximately 5% from clearance sales to alleviate excess inventory burdens. Issues with facility utilization further contributed to margin compression. Analysts slashed 2024 EBITDA forecasts by 17%, focusing on enhancing cash flow and fortifying the balance sheet. Cannabist’s stock slumped by nearly 21%, contrasting with a 14.5% upswing in the MSOS ETF.

  • TerrAscend (TRSSF) registered an EBITDA deficit of 17.6%, mainly linked to cultivation setbacks in Maryland, including crop failures. Projected lower margins in Q1 and a subsequent 16.5% reduction in full-year 2024 EBITDA estimates by analysts further dampened prospects.

• Analysts revised the 2024 EBITDA estimates for the sector downwards by approximately 1%, primarily driven by moderated revenue expectations. Projections anticipate a 3.8% revenue uptick and EBITDA margin expansion from 24.8% to 25.9%. Viridian remains optimistic about heightened revenue growth and additional margin enhancements within the sector.

The insightful Viridian Capital Chart of the Week sheds light on pivotal investment trends, valuations, and mergers and acquisitions insights gleaned from the Viridian Cannabis Deal Tracker.

The preceding article offers valuable insights derived from external contributors, and the views expressed do not necessarily reflect those of Benzinga.