Last week, Tilray (TLRY) and Turning Point Brands (TPB) kicked off the cannabis earnings season with their financial releases. Revenue rose 7.2% at Tilray and fell 16% at Turning Point.
But that was just the appetizer as more than 20 companies are expected to report their financial results in August.
This week, straight cannabis companies like Green Thumb Industries (GTBIF) and GrowGeneration (GRWG) will report along with companies like Jazz Pharma (JAZZ) that are invested in the cannabis industry.
Trulieve (TCNNF), Curaleaf (CURLF) , Green Thumb, and Cresco Labs (CRLBF) will be among the largest companies measured by revenue to report in the coming days, according to New Cannabis Ventures.
Trulieve's report is expected to show that revenue jumped 50% year over year, according to some analysts, and Curaleaf is expected to see revenue rise 8%.
But those increases may be the exception this earnings season, according to a recent Cowen note.
Cannabis Slump Ahead?
"Cannabis Consumers Are Cutting Back" is the headline on a new report from Cowen analyst Vivien Azer and her team.
Last week the investment firm lowered its estimates of U.S. cannabis revenue and total addressable market ahead of the August earnings season.
The more cautious outlook reflects trouble in states with older cannabis industries where the firm sees falling demand. States that have come online more recently are still seeing strong growth.
"While legacy states like California and Colorado are under pressure, newer states are delivering more impressive growth (e.g., Illinois, which grew 6% quarter over quarter in 2Q22, and Michigan, which was up 24% sequentially)," Azer said.
"Though price deflation has been a feature in these markets, the positive growth reflects the benefits of better foot traffic and volume purchases, which has offset the revenue growth headwind from negative price/mix."
"For some of our companies, M&A will continue to drive sequential growth in 2Q22, but for companies that are more reliant on organic growth, we expect low-single-digit quarter-over-quarter revenue growth in 2Q22," Azer wrote.
We expect better growth in [the second half] as we cycle easier [comparisons] but assume a posture where we are below consensus on both revenue and margins."
Overall, Cowen now expects the U.S. cannabis industry to grow 6% in 2022 to $26.4 billion. That figure is less than half its previous 13% growth estimate.
Longer term, Cowen expects the U.S. total addressable market to reach $45.6 billion in 2027, reflecting a 12% compounded annual growth rate. That figure doesn't price in the prospect that pot could be legalized at the federal level.
Cannabis During a Downturn
Citing University of Michigan data, Cowen says that lower-income consumers are currently more cautious about their spending than their wealthier counterparts.
Cowen's data suggest that 76% of reported cannabis consumers in the past month have less than a college degree.
High inflation, a creeping recession and potential losses in the job market could take a chunk out of the cannabis industry going forward.
Pricing is an issue. The more established states must still compete with the lower-priced illegal market, where cost-conscious stoners get their plant. So as legal prices deflate, the chances that smokers of illicit pot switch to legal avenues increase, Cowen said.
