- Fourth-quarter earnings have generally been disappointing relative to analyst expectations. Still, the cannabis equity markets have not significantly discriminated between companies with large % misses versus those close to expectations.
- The green line in the graph shows the percent miss in actual 4th quarter EBITDA vs. consensus analyst estimates. The orange line calculates the stock performance relative to the MSOS ETF from the day before earnings release to the day after release. The dotted trend line shows a modest positive slope, indicating that better earnings performance did have a small impact on stock performance.
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The correlation of .20 is quite low, indicating that over this period, the drivers of stock performance had little to do with announced earnings.
- The underperformance itself is not particularly surprising. We call it the Airport Flight Delay Theorem. When you are at the airport, and they come over the loudspeaker to announce that your flight has been delayed, have you ever noticed that they often come back on to tell you the flight is delayed further? We think similarly about earnings guidance from corporations and analysts’ earnings estimates. The tendency is not to reduce estimates enough, hoping that the company will make up lost ground. The double-digit downward revisions to 2022 estimates we saw throughout 2021 exemplify this.
- It makes sense that investors were indifferent about the quarter’s earnings misses. After all, we have rampaging inflation, a hot war in Eastern Europe, new Covid outbreaks, new Federal legalization proposals, New Jersey delays etc. And against that, a quarterly earnings miss?
- Viridian has consistently advocated taking a longer view and focusing on more strategic considerations. Who will benefit the most from the rollout in New Jersey and New York? How should you best play a California turnaround? Who is likely to be the next to be acquired? And of course the biggie, how do you play for eventual federal legalization?
- As analysts, we would never say earnings don’t matter, but with the chaos of the current political and economic backdrop, we have to concede that current quarter earnings don’t carry much weight.
The Viridian Capital Chart of the Week highlights key investment, valuation and M&A trends taken from the Viridian Cannabis Deal Tracker.
The Viridian Cannabis Deal Tracker provides the market intelligence that cannabis companies, investors, and acquirers utilize to make informed decisions regarding capital allocation and M&A strategy. The Deal Tracker is a proprietary information service that monitors capital raise and M&A activity in the legal cannabis, CBD, and psychedelics industries. Each week the Tracker aggregates and analyzes all closed deals and segments each according to key metrics:
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Industry Sector (one of 12 sectors, from Cultivation to Brands)
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Dollar value of the transaction
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Region in which the deal occurred (country or U.S. state)
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Status of the company announcing the transaction (Public vs. Private)
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Deal structure (equity vs. debt)
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Key deal terms (Pricing and Valuation)
Since its inception in 2015, the Viridian Cannabis Deal Tracker has tracked and analyzed more than 2,500 capital raises and 1,000 M&A transactions totaling over $50 billion in aggregate value.
Photo by Javier Hasse.
The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.
