Less than a week after the quarterly revenues were posted, Canopy Growth Corp., the largest cannabis company at market value, issued a correction.
Smiths Falls, Ontario-based company, said it was restoring a measurement in last week's fiscal third quarter and nine-month earnings solution following a formula error in a spreadsheet. Unfortunately, the metric question is one, the company has asked analysts and investors to look at it as the best target for its underlying business.
The company said nine-month adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) figure should have been $ 155 million ($ 117.8 million), but was reported as $ 69 million. "Adjusted EBITDA losses for the three months ended December 31
The news highlights some of the teenage problems that cannabis companies face in the early stages of the new legal sector. Canopy wrote his numbers much later than expected last Thursday night, and indicated the numbers in the Canadian securities regulator's database just before a 45-day deadline.
See also: CEO of Canopy Growth reveals top priorities for the world's largest legal marijuana company
The company reported an increase of 282% in quarterly revenues when marijuana became legal in Canada, but revenues were hit by losses of paper and accounting claims that may be unknown to US investors. Canadian companies use a different accounting standard for GAAP, or generally accepted accounting policies that US companies must adhere to.
For all MarketWatch's coverage of cannabis companies, click here.
For example, a mark-to-market conversion of senior convertible notes chopped $ 185.8 million from Canopy's profits, part of the effects of a turbulent pot stock market. The loss was removed from diluted earnings per share, but not basic EPS, so a 22-cent share surplus was 38 percent in losses on the next and last line.
Canadian accounting rules also stipulate that companies account for biological assets, their potted plants, at different stages, which means they must guess how much the plants are worth before actually selling them. In a young market with no future prices to rely on, it's a difficult calculation, as shown in the latest reports.
See More: How Marijuana Businesses Can Earn Without Selling Pots
And like many new sectors, cannabis business has already seen its share of shareholder management and self-trading by marketWatch reported managers. Only last week, Aphria Inc. said a survey of acquisitions in Argentina, Colombia and Jamaica indicated that some board members had conflicts of interest. The company's CEO Vic Neufeld and co-founder Cole Cacciavillani leave their roles in March, although they will continue as advisors.
See: The collapse of this cannabis stock gives a valuable reading to all investors
Also: Canadian cannabis company Namaste's stock glass by CEO is fired for cause
was down 1.3%, even as Piper Jaffray said it remains bullish on the company.
"We continue to estimate a potentially long-term global cannabis market of $ 250-500B with a long-term potential of $ 15-50B," analysts Michael Lavery and Jeffrey Kratky said in a note. "We expect intangible assets, value-added products and form factor development to be important long-term drivers for the company." Piper Jaffray considers the stock to be overweight with a price target of $ 60, equivalent to 33% up from the current trading level.
Seaport Global initiated coverage of the cannabis sector on Thursday and awarded purchase ratings to Aphria Inc.
APHA, + 2.07%
Green Organic Dutchman
TGODF, + 0.54%
TGOD, + 0.54%
KushCo Holdings Inc.
KSHB, + 4.14%
MedMen Enterprises Inc.
Green Thumb Industries Inc.
GTBIF, + 5.29%
Acreage Holdings Inc.
ACRGF, [0.459008] + 0.47% in Anthus Capital Holdings Inc.
and Curaleaf Holdings Inc.
It has neutral grades on Canopy, Tilray Inc.
and Aurora Cannabis Inc.
ACB, + 0.11%
Read now: Tilray makes the richest deal yet to jump into the US CBD market
Seaport expects the global market to come close to $ 640 billion by 2040, while the US alone can climb to $ 94 billion. The research company on Thursday published a more than 200 page report on the sector covering everything from individual companies to trends, regulations and a history of the plant.
In a section devoted to CBD or cannabidiol, analysts assume that the US Food and Drug Administration will relocate to update its attitude to the non-psychoactive ingredient found in cannabis and hemp, which is largely held to have wellness properties . The recent US pharmacy bill 2019 completely legalized hemp for commercial use, but the FDA has maintained a ban on CBD for food or drink because it has not been fully investigated. The agency has issued guidelines for the many companies eager to start CBD infused beverages and foods and have promised public talks on the matter, but for now, companies are in a state of limbo.
Seaport thinks it's just a matter of time and noted that many smaller local producers are ignoring the ban.
Now read: Why New York's plan to legalize cannabis for adult recreational use is a big issue
A bipartisan group of lawmakers sent a letter to the FDA last week and urged immediate action on the case . A series of recent actions in New York City, Maine and Ohio settling on the sale of CBD foods and beverages, have "spurred a tremendous amount of confusion among product manufacturers, hemp farmers and consumers of these products," the letter said, as reported by Weedmaps , an information society website for businesses and consumers.
Hexo shares were up 1.1%, Aurora was up 1.7%, Cronos was up 2.2% and Tilray was down 2.4%.
ETFMG Alternative Harvest ETF
was down 0.1%, and Horizons Marijuana Life Sciences ETF
HMMJ, [0.2459008] -0.23%
was up 0.3%. S&P 500
and Dow Jones Industrial Average
were both down about 0.4%.
See also: Washington moves closer to providing protection for banks working on the pot industry