Earnings from North American cannabis companies for the second quarter have been a mixed bag, with expansion into new markets, operational streamlining, and product innovation key themes across the sector.
Many multi-state operations (MSOs) are turning to emerging, less saturated international markets for growth, notably, Germany, which kicked off expanded medical sales amid broader legalization measures on April 1.
Smiths Falls, Ontario-based Canopy Growth (TSX:WEED, NYSE:CGC) pointed to “strong demand signals” in Germany’s medical cannabis market post-legalization, with the number of prescriptions and volume of cannabis prescribed increasing by more than 20%. It also noted growth in high-margin Poland.
Tilray Brands (NASDAQ:TLRY), which operates a marijuana cultivation facility in Neumünster, Germany through its Germany-based subsidiary Aphria RX, is also focused on strengthening its position in the country.
Meanwhile, MSOs have also been entering emerging US markets, such as Florida-based Trulieve Cannabis (CSE:TRUL), which has expanded into Ohio to capitalize on the state’s growing adult-use market. The company has launched adult-use sales at three locations in the state.
For Q2, the majority of cannabis firms reported revenue growth at varying paces, with entrances into new markets, medical cannabis segment growth and the introduction of new product lines to meet evolving consumer demand as common drivers.
Green Thumb Industries (CSE:GTII, OTCQX:GTBIF) saw revenue grow 11% year-over-year to $280 million, attributed to new dispensary openings and expanded adult-use sales in Maryland. The company saw significant revenue growth in its consumer packaged goods segment, which was up 17.3% from the year-ago quarter.
TerrAscend (CSE:TER, OTCQX:TRSSF) saw revenue grow 7.5% to $77.5 million, driven by increased wholesale revenue in Maryland, New Jersey and Pennsylvania.
On the other hand, Canopy Growth saw its revenue fall 13% year-over-year due to the impact of divested businesses. The firm has also been undergoing significant operational restructuring and these changes, such as closing facilities and reducing product lines, often result in short-term revenue declines.
Growth in Canadian medical cannabis sales, up 20%, was a bright spot, as was the launch of new products including CBD-infused beverages.
The profitability of cannabis firms generally improved during the second quarter with many undertaking cost-cutting measures and initiatives to streamline their operations.
Notably, Cresco Labs (CSE:CL, OTCQX:CRLBF) improved its adjusted earnings before interest, taxes, deprecation and amortization (EBITDA) margins by 880 basis points to 29%.
Meanwhile, Aurora Cannabis (TSX:ACB, NASDAQ:ACB)’ cost-reduction efforts and strategic focus on higher-margin medical cannabis products saw it achieve an EBITDA margin of 25%.
Trulieve’s strong market position and efficient operations allowed it to maintain its high gross margin of 60%.
Amid a period of cautious growth, cannabis firms will likely continue to pursue cost management and other strategic initiatives as they deal with ongoing challenges including stiff competition, price compression, and regulatory issues such as high taxation.
H/T: www.proactiveinvestors.com
