Four of Canada’s largest pot companies report earnings next week and while it’s too early for any post-legalization numbers, executive commentary should begin to divide the winners from the losers.

Aurora Cannabis Inc. will report pre-market Monday, followed by Cronos Group Inc. on Tuesday morning, Tilray Inc. post-market Tuesday and Canopy Growth Corp. on Wednesday morning. It will be the first chance for many analysts and investors to hear from executives since Canada legalized recreational cannabis use on Oct. 17, a move that was immediately followed by supply shortages across the country.

Any commentary on post-legalization sales and the supply bottleneck will be closely parsed by the investment community, but the selling, general and administrative expense line, or SG&A, could be more revealing, said Martin Landry, an analyst at GMP Securities.

“That’s what’s going to tell us the break-even level needed to reach profitability,” Landry said. “Some licensed producers have very heavy SG&A structures at this point that will impair their profitability levels and others are very lean.”

Average selling price, cost of production and run-rate production levels will be other key metrics to watch, said Bruce Campbell, founder of StoneCastle Investment Management Inc. and chief investment officer at Cannabis Growth Opportunity Corp., a publicly traded investment company.

“Then we can start to figure out, when they pull off their next harvest, how much money is that going to mean in the till if it goes to the provinces and is immediately sold?” he said.

Campbell has been repositioning his portfolio ahead of earnings, buying U.S.-focused stocks like Curaleaf Holdings Inc., 1933 Industries Inc., Cannex Capital Holdings Inc. and C21 Investments Inc. while trimming his exposure to Canadian licensed producers.

Pot stocks got a boost earlier this week from U.S. midterm election wins and the resignation of anti-marijuana Attorney General Jeff Sessions, although the optimism faded the following day, pressuring shares.

The stocks have largely moved in tandem to date but that’s expected to change as the impact of legalization becomes clearer. While investors are likely to watch earnings more closely this quarter than they have in the past, it will probably take a couple more reports before obvious winners and losers emerge.

“I think the real picture for us will be the March quarter,” Landry said. “Some of the kinks will have been worked out and we’re going to get a better sense of results when there’s less growing pains and smoother operations.”

Investors should keep in mind that the Canadian results are “a small portion of the overall story” as international markets open up, according to Stifel analyst Christopher Growe.

“Investment decisions based entirely on the initial results of the recreational market would likely be extremely short-sighted,” Growe wrote in a note.

Just the numbers

Tilray

-3Q adjusted loss per share estimate 11 cents (range 8 cents to 15 cents)
-3Q revenue estimate US$10.1 million (range US$8.8 million to US$11.2 million)
-Implied 1-day share move following earnings 26 per cent
-Shares have gained 598 per cent since July 18 IPO vs Nasdaq Composite Index down 4.1 per cent
-Tilray reports post-market Nov. 13; call 4:30 p.m. 877-489-6528

Canopy Growth

-3Q adjusted loss per share estimate $0.14 (range loss $0.08 to loss $0.23)
-3Q revenue estimate $61.4 million (range $33.7 million to $83.6 million)
-Implied 1-day share move following earnings 3.3 per cent
-Shares have gained 88 per cent in Toronto this year
-Canopy Growth reports pre-market Nov. 14, call 8:30 a.m. 888-231-8191 pw 4578825

Aurora Cannabis and Cronos Group

-NOTE: Aurora and Cronos don’t have enough estimates to compile a reliable consensus, according to Bloomberg data

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