Pot Companies’ Outlooks ‘No Better Than a Coin Flip,’ MKM Says

(Bloomberg) -- Investors would do just as well to flip a coin as to listen to cannabis companies’ predictions, according to an investigation by research firm MKM Partners.

Analyst Bill Kirk examined every earnings transcript since 2017 for the six Canadian pot producers he covers and found 947 predictions, promises and outlooks. Of those, 29% were correct, 28% were incorrect and 43% are yet to be determined. That means 51% of predictions with a known outcome turned out to be true.

Perhaps unsurprisingly, negative predictions were far more likely to be true, with 93% correct, than positive predictions, with 48% correct.

“It is difficult to rely on company commentary about positive expectations, but if they are making negative commentary, investors should take notice,” Kirk said in a note published Monday.

The best prognosticator was Tilray Inc., which was correct in 72% of its 137 resolved predictions.

Hexo Corp. had the worst track record, with just 18% of its predictions turning out to be correct. The Gatineau, Quebec-based company said in March 2019 that it would generate C$400 million in revenue in fiscal 2020. It was confident enough to reiterate that guidance in June, then retracted it in October. Today, the consensus estimate is that Hexo will report revenue of C$77.5 million in the fiscal year, which ends July 31.

Aurora Cannabis Inc. also flubbed its earnings guidance, saying in August that it would generate fiscal fourth-quarter revenue of C$100 million to C$107 million. Even though that forecast was made 37 days after the quarter had closed, Aurora ended up reporting revenue of C$98.9 million.

The failed predictions weren’t just about companies’ financial results. Canopy Growth Corp., for example, said in September 2018 that Ontario would have 250 cannabis stores open one year later. Instead, the province had just 24 stores open by that time.

And the number of correct guesses is likely to get worse, Kirk said. “We believe investors should assume most current predictions will fail.”

©2020 Bloomberg L.P.

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