Lowell Farms falls on missed estimates, other cannabis stocks slump

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Lowell Farms falls on missed estimates, other cannabis stocks slump
<a href="https://pixabay.com/users/NickyPe/">NickyPe</a> / Pixabay

Cannabis company Lowell Farms, previously known as Indus Holdings, came up short of estimates for the fourth quarter, and management expressed caution on the earnings call. However, analysts at Canaccord Genuity maintained their Speculative Buy rating and left their price target unchanged at C$2.75.

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Meanwhile, cannabis stocks slumped today, with the entire sector falling during regular trading hours.

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Lowell Farms misses estimates

In a report today, analyst Bobby Burleson said Lowell Farms hit a rough patch in the fourth quarter that lingered during the first quarter. He reduced his estimates for revenue and adjusted EBITDA for the first half of the year due to yield issues from California's wildfires and COVID-related disruptions.

However, Burleson remains constructive on the cannabis company, saying that cultivation output is recovering sharply, which means those issues are only temporary. Additionally, he sees opportunities in branding and premium flower share gain through the Lowell Herb acquisition, which could result in upside to his 2022 estimates. He sees margins as being especially ripe for upside.

Burleson also believes Lowell Farms' ambitious cultivation expansion plans line up with consolidation trends in California and longer-term interstate commerce potential if marijuana becomes legalized at the federal level. The company started leasing a 300,000-square-foot facility in November to increase growth capacity with 50,000 pounds of flower capacity, essentially doubling its output. Management is also considering two other facilities.

He lowered his first-quarter revenue estimate from $15.5 million to $10 million and his full-year estimate from $87.7 million to $76.2 million. His EBITDA estimate falls from $2.3 million to -$1.7 million for the first quarter, while for the full year, it falls from $18.5 million to $5 million.

Cannabis stocks tumble

Cannabis stocks were weak today, with all major names in the red. Lowell Farms stock was down more than 7% on the Canadian Securities Exchange. Tilray stock plunged more than 9%, while Aphria declined by about 7%. Canopy Growth was down 6% even though the company announced it was bringing sparkling water infused with CBD into the U.S. market. Cronos Group fell 5%, while Sundial Growers was off by 10%. Aurora Cannabis declined by more than 6%.

It's been a volatile week for weed stocks, with many shares changing hands on little or no news. The entire sector remains subject to widespread speculation about whether marijuana will be legalized at the federal level in the coming years.

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